According to an announcement by the program’s board, MarylandSaves will begin offering its new automatic workplace retirement and emergency savings program starting next summer.
Created by legislation that went into effect on July 1, 2016, MarylandSaves is a state-sponsored program that seeks to make it easier for businesses to offer their employees a retirement savings plan. The program requires employers with 10 or more employees that use an automated payroll system or service to either offer a retirement plan or sign their employees up for the MarylandSaves program.
Businesses that do so will receive $300 per year via a waiver of the Maryland business annual filing fee. In addition, employers will have no payment obligations, have no federal reporting requirements, and will pay nothing to MarylandSaves for the service.
All covered employees must be automatically enrolled in the program by their covered employers, unless the employees have opted out. The program’s board has targeted an initial default contribution rate of 5% of pay, with an automatic escalation of 1% per year up to a maximum of 10%. Employees will be able to withdraw funds, choose investment options or change their savings amount. Savers can also keep their accounts when they change jobs.
The announcement further emphasizes that MarylandSaves will be the first such state-run program that also helps people have reliable income after they retire. Savers in the program will automatically be converted into a monthly paycheck at retirement age unless they choose otherwise.
“Beginning next summer, more than one million Marylanders will have a better chance for financial security. Building on years of work both here and in other states, our program will be a rarity: an automatic workplace retirement program that doesn’t stop working when you retire and need it most,” MarylandSaves Chair Josh Gotbaum said in a statement. Gotbaum is a former director of the Pension Benefit Guaranty Corporation.
Emergency and Retirement Savings Options
The program will be administered by Vestwell, Sumday, and BNYMellon, the announcement further notes. All savings will be managed by BlackRock, State Street Global Advisors, Lincoln Financial Group, and T. Rowe Price.
Under the program, funds will initially go into an emergency savings account using the Lincoln Financial Stable Value Fund until it reaches a balance of $1,000. This Fund currently has a guaranteed interest rate of 1.4% and there are no separate investment fees.
After the emergency savings account is funded, the participant’s contributions will be invested in the age-appropriate BlackRock Target Date Fund. Optional investment choices include an Income Fund (State Street Aggregate Bond Index Fund, Class K), and a Growth Fund (T. Rowe Price Global Growth Stock Fund), the announcement explains.
Social Security Bridge
In addition to the managed payout approach, the announcement notes, savers will have a chance to increase their Social Security payments by drawing down their MarylandSaves account first and applying for Social Security later.
Since most Americans begin claiming Social Security before their full retirement age of 67, they typically do not get their full benefits. MarylandSaves’ Social Security Bridge option will allow savers to use their MarylandSaves as income to defer claiming Social Security and thereby increase their benefit by 8% for every year they defer their Social Security application, the announcement notes.
Kathleen Kennedy Townsend, a former MarylandSaves board member who initially proposed the idea and currently serves as an advisor at the Department of Labor, stated, “We want to encourage people to make the most of their Social Security benefits. Waiting to claim Social Security can increase your monthly benefits by up to 8% per year. If MarylandSaves allows participants to defer until age 70, they can increase their monthly benefit by more than 50%. That would make a real difference in their quality of life.”
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