A bill pending in the Maine legislature would create a public-private partnership to promote individual retirement savings accounts.
State Senator Eloise Vitelli (D-Sagadahoc) introduced LD 594 on Feb. 5, 2019. The Senate Committee on Health Coverage, Insurance and Financial Services reported the bill to the full Senate on Aug. 4, 2020, with a majority of the committee members recommending that the bill should pass as amended.
Even those with differing views on the measure roughly agreed in their testimony to the committee regarding what the bill would require.
State Treasurer Henry Beck expressed strong support for the measure. “The need to encourage and facilitate private savings for retirement is self-evident,” he wrote in a letter to the committee. “My read of the legislation is generally as follows: Employers who do not happen to offer retirement savings options must automatically enroll employees (who may opt out) to send withheld income to a state entity that oversees the investment of funds to in low fee options. A competitive procurement process would be used for other administration and investments by private sector actors.”
And David Clough, Maine State Director of the National Federation of Independent Business (NFIB), noted: “As proposed, LD 594 would apply to all employers that do not offer a federally qualified retirement plan, and require all of those employers to offer its employees the opportunity to contribute to the state-sponsored plan through payroll deductions.” He continued, “Mandatory offer would require small employers to maintain explanatory literature and forms for an employee to sign up. The employer would go through this process with each new hire and perhaps annually for employees who have opted out from participation.”
LD 594 provides that the plan must:
- Allow an eligible employee in Maine to contribute to an account established under the plan through payroll deductions.
- Require an employer to offer its employees the opportunity to contribute to the plan through payroll deductions unless the employer offers a qualified retirement plan, including, but not limited to, a plan qualified under Internal Revenue Code Sections 401(a), 401(k), 403(a), 403(b), 408(k), 408(p) or 457(b).
- Provide for automatic enrollment of employees and allow employees to opt out of the plan.
- Have a minimum or default contribution amount.
- Offer default escalation of contribution levels that can be increased or decreased within the limits allowed by the Internal Revenue Code.
- Provide for contributions to the plan to be deposited directly with any investment administrator for the plan.
- Whenever possible, use existing employer and public infrastructure to facilitate contributions to the plan, record keeping and outreach.
- Require the maintenance of separate records and accounting for each plan account.
- Provide for reports on the status of plan accounts to be provided to plan participants at least annually.
- Allow for plan account owners to maintain their accounts regardless of place of employment and to roll over funds into other retirement accounts.
- Pool accounts established under the plan for investment.
- Be professionally managed.
- Provide that the state and employers that participate in the plan have no proprietary interest in the contributions to or earnings on amounts contributed to accounts established under the plan.
- Provide that any investment administrator for the plan is the trustee of all contributions and earnings on amounts contributed to accounts established under the plan.
- Keep administration fees in the plan low.
- Allow the use of private sector partnerships to administer and invest the contributions to the plan under the supervision and guidance of the board.
- Allow employers to establish an alternative retirement plan for some or all employees.
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The legislation also specifies that the plan may not:
- Require an employer to contribute to an employee's plan account.
- Impose any duties under ERISA.
- Guarantee any rate of return or any interest rate on any contribution.
In addition, it would create the Maine Retirement Savings Board within the Office of the Treasurer of State to develop and maintain a defined contribution retirement plan for persons employed for compensation in Maine and to conduct a market and legal analysis of the plan.
Burden on Employers
The NFIB's Clough expressed concern over the effect the requirements would place on those who run small businesses. “Most small employers do not have human resource professionals to handle personnel matters; the owner typically handles these duties—along with handling many other aspects of operating a successful small business. Because the owner has finite time and resources, any new obligations may increase the stress of being an employer and increase the risk making errors. The owner also would be required to arrange and pay for automatic payroll deductions,” he wrote.
Clough noted that the NFIB Maine members “expressed strong opposition” to the requirement that they mandatory offer a state-sponsored retirement account to their employees. They certainly did—to the tune of 84%. Just 10% said they support the provision.
And while he said he supports the bill, State Treasurer Beck nonetheless suggested that the process of passage and adoption be deliberate. “I encourage the Committee to proceed slowly with the LD, allowing time for study,” he wrote.
Both Beck and Clough suggested looking to the example that states that have put such plans in place have set. Beck noted that “California, Oregon and Illinois (as well as other states) are undertaking similar efforts” and asked, “What can we learn from Oregon especially?” Clough noted that some states—notably Massachusetts, New York and Vermont—have made it optional for employers to offer a plan, and that New Jersey and Washington have created virtual marketplaces through which small employers can give their employees access to private retirement plans.
