Maryland to Launch Retirement Program in Summer 2022

MarylandSaves, Maryland’s new automatic workplace retirement and emergency savings program, is slated to launch next summer. The state says it is the first state-sponsored automatic private retirement program that will provide income in retirement.

The program will be administered by a team composed of Vestwell, Sumday, and BNYMellon, and all savings will be managed by BlackRock, State Street Global Advisors, Lincoln Financial Group, and T. Rowe Price.

Participants in the program will have their assets automatically converted into a monthly paycheck at retirement age unless they choose otherwise. They will also have the option to increase their Social Security payments by deferring Social Security enrollment and instead receiving their MarylandSaves funds first.

Because Americans who begin claiming Social Security before their full retirement age of 67 don’t get their full benefits, MarylandSaves’ Social Security Bridge option is intended to allow savers to defer claiming Social Security by using their MarylandSaves funds and thus increase their Social Security benefit by 8% for every year they defer.

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“Beginning next summer, more than 1 million Marylanders will have a better chance for financial security,” MarylandSaves Chair Josh Gotbaum, a former director of the Pension Benefit Guaranty Corporation (PBGC), said in a statement. “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.”

Under Maryland law, established businesses that use an automatic payroll system are required to either offer a retirement plan or sign their employees up for the MarylandSaves program. Businesses that participate in the program will receive $300 per year via a waiver of the Maryland business annual filing fee, and they will have no payment obligations, no federal reporting requirements, and pay no fees to MarylandSaves for the service.

Although employee participation is voluntary, they will be automatically enrolled in the program and will be able to withdraw funds, choose investment options, change their savings amount, or opt out at any time. The state says account fees will be lower than commercial alternatives, and the retirement plans will be portable so workers can keep their accounts if they change jobs.

Contributed funds will initially go into an emergency savings account using the Lincoln Financial Stable Value Fund, which currently has a guaranteed interest rate of 1.4% with no separate investment fees.

Once the emergency savings account is funded, the participant’s contributions will be invested in an age-appropriate BlackRock Target Date Fund. Optional investment choices include State Street’s Aggregate Bond Index Fund, which is an income fund, and the T. Rowe Price Global Growth Stock Fund. The default option will be a monthly payment calculated to for last a saver’s lifetime, though it will not be guaranteed.

The MarylandSaves program is overseen by a board whose members include the Maryland state treasurer, the Maryland secretary of labor, and three members each appointed by the governor, the president of the state Senate, and the speaker of the state’s House of Delegates.

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Tags: automatic retirement plan, BlackRock, BNY Mellon, Lincoln Financial Group, Maryland, MarylandSaves, State Street Global Advisors, Sumday, T. Rowe Price, Vestwell

Fidelity Investments and State Street Global Advisors have joined a growing number of financial services firms taking advantage of the Setting Every Community Up for Retirement Enhancement (SECURE) Act to offer retirement plans that provide an income stream during retirement.

The SECURE Act created a safe harbor that eases liability concerns that often prevented plan sponsors from offering annuities within a defined contribution (DC) plan.

Fidelity Investments’ Guaranteed Income Direct offering allows clients to convert a portion of their 401(k) or 403(b) plan savings into an annuity to provide pension-like payments during retirement. The firm cited research from the Employee Benefit Research Institute (EBRI)’s 2021 “Retirement Confidence Survey” that indicates 78% of workers are interested in an investment option that would guarantee monthly income when they retire.

“Shifting from saving for retirement to living in retirement is one of the biggest transitions a person will make in their lifetime,” Keri Dogan, senior vice president of retirement solutions at Fidelity, said in a statement. “Our new Guaranteed Income Direct product provides employees with a simplified option to use their retirement savings plan assets to create their own personal pension and provide them with a steady, reliable stream of income to help cover their expenses in retirement.”

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Under Fidelity’s Guaranteed Income Direct product, participants can convert any amount of their retirement plan savings to guaranteed retirement income. Any savings that are not converted to an annuity can remain in the workplace savings plan.

State Street Global Advisors’ IncomeWise offering is a deferred lifetime income product launched within the University of California’s DC plans that cover more than 300,000 participants and have more than $34.6 billion in assets. IncomeWise combines traditional target-date funds (TDFs) with a guaranteed lifetime income solution for participants of defined contribution plans.

IncomeWise uses State Street’s TDFs to help participants save money during their working years. They can then convert a portion of that money into a guaranteed income stream for their later years of retirement by purchasing a qualified longevity annuity contract (QLAC).

“The University of California has been researching how best to evolve our retirement savings program to help participants save during their working years and live long, comfortable lives in retirement,” University of California Chief Investment Officer Jagdeep Singh Bachher, said in a statement. “People are living longer, with smaller pensions due to shorter job tenures. Given market volatility, there’s now a strong need for a supplemental source of guaranteed income in the later years of life.”

The investment firms are joining several other firms that have recently begun offering DC plans that provide income during retirement. In October, BlackRock said it will begin offering a guaranteed stream of income for life in 401(k) plans by embedding annuity contracts directly into a target-date strategy. The program offers plan participants the option to purchase fixed individual retirement annuities from the insurers that will provide a guaranteed stream of income for life.

Nationwide, in partnership with Capital Group, also announced in October the launch of its NCIT American Funds Lifetime Income Builder Target Date Series. The TDF incorporates a fixed indexed annuity with a guaranteed lifetime withdrawal benefit. And in March, a consortium of firms that includes American Century Investments, Lincoln Financial Group, Nationwide, Prime Capital Investment Advisors, SS&C Technologies, Wilmington Trust N.A., and Wilshire launched a new in-plan target-date series with guaranteed income.