Do you own a business?

Are you in the state of Maryland?

Then in most cases you must comply.

According to MarylandSaves, Roughly one million people in Maryland are working full time but their employers don’t offer a savings plan.  That is about to change. Maryland’s program officially opened to the public September 15th. Maryland is now the 14th state that has created legislation and becomes the sixth active implementation along with California, Illinois, Massachusetts, Oregon, and Washington. And this is just the beginning. I could easily see most states adopting something similar in coming years.

What does Maryland Saves mean for you?

If you own a business in the state of Maryland I am going to explain what you need to know.

If you have a for profit or non profit business operating in the state of Maryland and:

• You have been in business for at least two years.
• You have at least ONE W2 employee
• You pay employees through a payroll system like, ADP, Paychex, or my personal favorite… Gusto.
• You haven’t provided a retirement savings plan in the last two years
• You don’t currently offer your employees a retirement plan.

Then you must register for the new MarylandSaves Plan or set up an alternative plan for employees by December 31, 2022.  That doesn’t give you much time.

What if you already have a retirement plan set up for your business?

Good news.  If you do have a current retirement plan you are able to opt out of the state plan. But, you still must go through the process of the opt out, effectively telling the state that you have a plan in place. That’s actually an easy process and puts you in compliance so you avoid fines from the state.  To opt out, you can go to the MarylandSaves website, enter some basic company information as well as an access code that the program is sending to eligible businesses.  Then you simply register as exempt.

Here is a little incentive.  As long as you register or opt out because you have an existing plan, you will receive a waiver on the $300 annual business filing fee.  The only businesses that will not get the waiver or those that ignore this! So, it’s an easy way to make $300 a year.

OK, now before you go off the rails if you don’t yet have a retirement plan set up, I am here to tell you, it’s not that bad.  In my opinion, this is actually a good thing.  For many people, we need deadlines to make things happen.  Many small business owners talk about putting a retirement plan in place for employees and for themselves but for one reason or another it gets delayed.  Well now is the chance to to address this because you now are REQUIRED to do something.

What is the Maryland Saves Plan?

The Maryland Saves Plan is a new automatic workplace retirement and emergency savings program.  Called Work Life accounts, Maryland is the first state to include retirement savings and emergency savings in one account.  Under the law, employers with automatic payroll systems are required to establish a payroll deduction arrangement for employees through the state run trust.

This plan is set up as Roth IRA accounts for individual employees.  What is a Roth IRA?  a Roth IRA is a retirement account where employees do NOT receive a deduction for contributing, but the growth over time is not taxed nor are distributions as long as it is used for retirement and a few rules are followed.  In addition, you have access to any contributions if you need them without penalty or tax. That can be a huge advantage the younger you are.  Which is why this plan is being implemented.

It’s important to note however that Roth IRA contribution rules do include this plan. So if you are maxing out other IRA contributions you may not be able to contribute. If your household income is too high you may not be able to contribute either.  The annual maximum Roth IRA contribution 2022 is $6,000 for those under 50 and $7,000 if you are 50 and over.

What Are the Plan Costs for Maryland Saves?

This was designed to be very hands off for the employer.  Unlike other retirement plans, there are no fiduciary or required employer matching obligations.  There are no record keeping or advisory or administrative fees charged to the employer.  So essentially, no cost to the employer.  There are administrative and asset management fees that are assessed to participants however. So, employees should be aware that the plan isn’t free to them but is still priced attractively.

How to Register for Maryland Saves

As The employer, if you don’t have an existing plan in place, head over to Maryland Saves website, register for the plan, and add employee data, including payroll information.  If you have a small company you can add the data manually, if you have a large number of employees you can upload employee data in a batch.

Once the employer adds an employee to the plan, they will receive a welcome email and then have 30 days to opt out.  If they don’t, the Employee is automatically enrolled in the plan as long as they are over age 18.

Automatic Contributions for Employees

Each employee, by default has an initial 5% deferral from employee pay set up with automatic 1% increases up to a maximum of 10% not to exceed the IRS contribution limit for the year.  The point here is that studies show a large number of employees will not change the auto enrollment and so will begin accumulating savings automatically. The employee does have the ability to change the deferral up or down or eliminate it completely, but they will have to manually do it on their own, not the employer.  The employee also chooses the investment options and can withdraw the funds if they choose.

How are Maryland Saves Funds Invested?

When payroll deferrals are made, funds are placed into an emergency savings account until the balance reaches $1,000. Those funds are 100% invested into a Guaranteed Investment Contract issued by Lincoln National Life.  After the emergency savings account is funded, contributions are invested into an age appropriate target date fund or other options that can be chosen by the employee.

Setting Up a New Custom Company Retirement Plan

OK, now that you know the details and the limitations of this plan, what if this is the nudge to look into setting up your own company plan?  There are a number of great options out there that can be implemented in cost effective ways to save for retirement AND get some great tax incentives. A custom plan, may allow for:

• Both Traditional and Roth Contribution options
• Higher Contribution Limits
• A matching component as a way to give employee bonuses
• Profit sharing with your employees.
• More robust suite of investment options

There are a lot of choices. But go slow.  Design a plan that works for you.  The only deadline is that something must be done by December 31st.  For most companies without a plan, the MarylandSaves option may be the best choice for now, while you decide if you want to implement something else.

What about employers in other states?  As these mandates continue to roll out over the next couple of years, it’s important for small businesses to keep an eye on deadlines, rules, and regulations to avoid penalties.

I work with business owners around the country every day on the best ways to structure a retirement plan to maximize the benefits of both the employer and the employee.  If you would like to discuss your situation further and what retirement plan may make the best sense for your business, feel free to reach out to me on my website celestialwm.com.  Hit the contact button and send me a message.

Cheers!

Colin B. Exelby, CFP®

The post What Maryland Businesses Should Know About the New State Retirement Plan Laws and Maryland Saves. appeared first on See The Forest Through The Trees.