New state retirement program targets small-business employees

Sep. 8—Greg and Lauren Soutiea faced a dilemma in 2021 when they considered which benefits to offer their small but growing staff at the Craignair Inn by the Sea in Spruce Head.

They knew providing health insurance and a retirement savings program would help attract and keep quality workers, but they couldn't afford both. So, they chose health coverage to address their employees' most immediate needs.

Now, the Soutieas and more than 6,700 other business owners like them will be able to help Maine workers save for their golden years.

The Craignair is among the eight companies that so far are participating in a pilot of the new Maine Retirement Investment Trust (MERIT) starting in October. The state-sponsored retirement program will be free to business owners and could save taxpayers millions that are now spent on older Mainers who haven't put away enough to cover basic living expenses after age 65.

Established by the Legislature, MERIT launches statewide in January, finally giving more than 200,000 Mainers a simple, low-cost retirement plan that can follow them from job to job. Qualified workers will be enrolled automatically and contribute to a Roth IRA (individual retirement account) directly from their paychecks if they don't opt out.

MERIT puts Maine among 14 states that have recently started or are developing similar programs. Most of the workers who will benefit have never been offered an employer-sponsored plan, which is why many Mainers retire without enough money to live comfortably into their 80s and 90s.

The Soutieas are looking forward to registering their 30 employees in the MERIT program, which has been set up in a first-of-its-kind partnership with Colorado's SecureSavings program that started in January.

"It's going to benefit a lot of our employees and a lot of people around the state," said Greg Soutiea, a HospitalityMaine member who has been following MERIT's development for the past few years. He's also a board member of the Penobscot Bay Chamber of Commerce, which will present a webinar on the program this fall.

His sister, Terrill Soutiea, the inn's assistant manager, said she probably will sign up for the MERIT program. Single and formerly self-employed, she has never paid into a retirement plan. But at 37, she's been thinking about it a lot lately.

"I'm absolutely interested," she said. "Saving for retirement is something that has occurred to me quite a bit in recent years. I'm excited to check it out some more."

MANY MAINERS UNPREPARED

Lack of retirement savings poses a huge challenge for Maine and its workers. But so is the lack of access to employer-sponsored savings plans, especially when studies show people are 15 times more likely to save for retirement if they're offered a plan through work, according to AARP.

Among Maine's 504,000 private sector employees, 207,000, or 41%, don't have access to an employer-sponsored retirement savings plan, according to Georgetown University's Center for Retirement Initiatives.

The same study found that one in five Maine retiree households relies on Social Security for at least 90% of its income. That's a tight budget when the average monthly Social Security benefit in Maine is about $1,600 and the average retirement savings per working household here is $2,500, AARP reports.

The savings gap is stunning. Financial experts say retirees need to save about 10 times their maximum annual salary to maintain their standard of living. If you make $25,000 at retirement, you should have saved $250,000; if you make $50,000 a year, you'll need $500,000; and so on.

While it's impossible to predict exactly how much savings you'll need or how long you'll live, AARP says it's best to assume you will live to 90 or beyond, based on IRS mortality tables.

The lack of retirement savings affects more than individuals. The Pew Charitable Trust estimates it will cost the state of Maine more than $1.6 billion in spending for MaineCare and other assistance programs through 2040. That cost will likely continue to increase without intervention since the portion of Maine's population age 65 and older — 22.5% — is now the highest in the nation.

"Our dismal savings rate will only have those costs mushroom as our population continues to age," said Jessica Simpson, of Cape Elizabeth, an AARP volunteer who testified in favor of the retirement savings program in 2021.

EASY AND INEXPENSIVE

Starting in January, Maine employers that have five or more employees but don't offer a retirement savings plan must register with the MERIT program, enroll their workers through an online portal and initiate payroll deductions based on each employee's choices.

That's 6,738 firms, according to Pew. The vast majority — 5,595 or 83% — have fewer than 20 employees; 3,908 have five to nine employees; 1,687 have 10-19 employees; 898 have 20-99 employees and 245 have 100 or more employees.

All employees will receive information about MERIT and an invitation to open an online account. If employees take no action, accounts will be opened for them and 5% of their earnings will be deposited each pay period.

Employees can take a more hands-on approach, choosing how much to deduct from each paycheck and how their funds will be invested, or they can opt-out. Employees can make changes at any time.

"From the outset, the program was intended to be as easy as possible for both employers and employees to participate ... so that more Mainers can have a more financially secure and stable retirement," Sen. Eloise Vitelli, D-Arrowsic, said in presenting the legislation that created MERIT.

MERIT was established with $1.6 million that Maine received in a multistate settlement with Moody's Investors Services Inc., said Elizabeth Bordowitz, MERIT's executive director. The program is intended to be self-sustaining, managed by an independent board of directors that's required to keep fees as low as possible.

Not everyone likes the automatic enrollment feature, including innkeeper Greg Soutiea, who worries that it may lead some people to automatically opt-out.

"For younger workers and people who live paycheck to paycheck, 5% is a big chunk of their income," he said.

But Lauren Soutiea thinks auto-enrollment will increase participation, "even if it is a little heavy-handed."

Bordowitz noted that the recently approved federal Secure 2.0 Act to increase retirement savings requires that all new 401(k) plans include automatic enrollment starting in 2025.

MERIT doesn't include matching employer contributions offered with 401(k) plans, which encourage workers to contribute the most they can afford and result in significantly larger retirement savings.

NEVER TOO LATE

Financial experts recommend saving for retirement as soon as possible. If you start putting $5,000 a year into an IRA at age 30, you'll have about $669,400 at age 70, assuming you earn 5% a year, according to AARP. If you start at age 50, you'll have $186,860.

Still, Bordowitz is banking on people recognizing that it's never too late to enroll in MERIT. Pew estimates that within 2 1/2 years, 46,150 people will be participating in the program and actively saving for retirement.

Businesses can sign up for the pilot through Sept. 10 and employees can get more information about the program through the MERIT website at mainesaves.org.

Maine chose to partner with Colorado's SecureSavings retirement plan to create an even larger pool of investors, Bordowitz said, while maintaining autonomy in managing the MERIT program.

Partnering with an established program also allowed for a faster startup and will help lower operating costs and fees, she said. Maine officials also considered partnering with similar plans in Connecticut, Maryland and Oregon.

"There's always a benefit in larger numbers in the financial world," Bordowitz said. "But the closer really was that Colorado was prepared to have a real collaboration and make the partnership work."

The inner workings of Colorado's SecureSavings program are of little interest to Taylor Howell, head bartender at Wood's High Mountain Distillery in Salida, Colorado.

Single and 33, Howell eagerly enrolled in the program and has been saving 5% of her paycheck for several months. She has worked in food and beverage services since she was 15 and never had an employer-sponsored opportunity to save for retirement.

"It's a rare thing in our industry and I think it's great," she said. "I don't even notice it coming out of my paychecks, so it's out of sight, out of mind. And it was so easy. The boss asked and I was signed up."

This story was updated at 9:30 a.m. Friday to correct the time the MERIT program launches.