MarylandSaves, a state-backed automatic IRA program, will officially launch in summer 2022, according to a news release Monday.
Under Maryland law, established businesses that use an automatic payroll system are required either to offer a retirement plan or to sign their employees up for the MarylandSaves program. Employers will have no payment or fiduciary obligations, have no federal reporting requirements and will pay nothing to MarylandSaves for the service, according to the news release.
Employees will be automatically enrolled in the program. The initial contribution rate is 5% of pay, and participants can elect lower or higher rates, or opt out. Default contributions will automatically escalate 1 percentage point annually to a maximum of 10%.
MarylandSaves is the first state-backed auto IRA program in the country that will provide options designed to help after someone retires, according to the news release. The default option for participants will be a monthly payment calculated, but not guaranteed, to last a saver's lifetime.
The program is designed to give participating employees the option to increase their Social Security payments by drawing down their MarylandSaves account first and applying for Social Security later. Most Americans begin claiming Social Security before their full retirement age and therefore don't get their full benefits, the news release noted.
Kathleen Kennedy Townsend, a former MarylandSaves board member who now serves as Labor Secretary Marty Walsh's representative on retirement and pension issues, initially proposed the idea. "We want to encourage people to make the most of their Social Security benefits," she said in the news release. "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."
MarylandSaves will be administered by a team composed of Vestwell, Bank of New York Mellon and its subsidiary, Sumday. Assets will be managed by BlackRock, State Street Global Advisors, Lincoln Financial Group and T. Rowe Price.
The program's default option will direct a participant's first $1,000 into an emergency savings fund, the underlying investment of which is a Lincoln Stable Value Fund, an annuity with a current guaranteed return of 1.4%, Glenn Simmons, MarylandSaves' acting executive director, said in an email. Subsequent contributions will default into an age-appropriate BlackRock target-date fund. But at any time, savers can opt out of the default and choose to invest in two other funds: an income fund — State Street Aggregate Bond Index Fund (Class K) — or a growth fund — T. Rowe Price Global Growth Stock Fund, Mr. Simmons said.
"Beginning next summer, more than 1 million Marylanders will have a better chance for financial security," said Joshua Gotbaum, chairman of the Maryland Small Business Retirement Savings Board, in a news release Monday. "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."
