Maryland launches automatic IRA program

MarylandSaves, a state-backed automatic IRA program, has officially been launched.

The program, established under a Maryland law passed in 2016, went live Sept. 15 after years of preparation. Now, established businesses that use an automatic payroll system or service 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.

While employees will be automatically enrolled in the program, they can opt out any time. The initial contribution rate to their personal WorkLife Savings Account is 5% of pay, and participants can elect lower or higher rates. Default contributions will automatically escalate 1 percentage point annually to a maximum of 10%.

"MarylandSaves is an advance on traditional retirement savings," said MarylandSaves Board Chairman Joshua Gotbaum, in a news release. "It's automatic savings from each paycheck, savings that help with life's emergencies now and can keep helping after people retire and need it most."

MarylandSaves will be administered by a team composed of Vestwell and Bank of New York Mellon. Assets will be managed by BlackRock, State Street Global Advisors, Lincoln Financial Group and T. Rowe Price Group.

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 Account, an annuity with a current guaranteed return of 2%, said Glenn Simmons, MarylandSaves' executive director, in an email. The contract has a guaranteed minimum return of 1% for the life of the contract, Mr. Simmons added.

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.

The program is also designing a "Social Security bridge" feature 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.

Separately, MarylandSaves is working on a "managed payout" feature to enable participants to automatically convert their WorkLife Savings Accounts to a monthly paycheck when they are ready to retire, in an amount estimated but not guaranteed, to last a saver's lifetime, according to the news release.

"Getting a monthly check will take much of the guesswork out of retirement," Mr. Gotbaum said.

However, the "Social Security bridge" and "managed payout" options are not expected to be available for several years and the board may adjust those options, the release noted.