Maryland auto IRA to include retirement income, emergency savings

Maryland’s automatic IRA is slated to go live next summer and will be the first to include retirement income and emergency savings components, the program announced Monday.

That initiative, MarylandSaves, is being administered by Vestwell, Sumday and BNY Mellon, with investment options provided by BlackRock, State Street Global Advisors, Lincoln Financial Group and T. Rowe Price. Sumday, a BNY subsidiary, is being acquired by Vestwell, the firms announced earlier this month.

Unique to the Maryland program is a feature that automatically begins making payments to account holders when they reach “retirement age,” unless they specify a different arrangement. The auto IRA will also allow participants to start receiving payments from those accounts ahead of Social Security, meaning that they can defer claiming and thus increase the size of their Social Security benefit, according to MarylandSaves.

“Waiting to claim Social Security can increase your monthly benefits by up to 8% per year. If MarylandSaves allows participants to defer until age 70, they can increase their monthly benefit by more than 50%,” former Maryland Lieutenant Governor Kathleen Kennedy Townsend said in the announcement.

Businesses in the state that don't already offer a retirement plan to their employees will be required to register. Workers will have contributions automatically deducted from their pay, but as with other auto IRAs, they can opt out. Other state programs that are up and running have seen opt-out rates of about 30%.

Fees within the program “will be lower than commercial alternatives,” the announcement stated.

Initially, contributions will go into an emergency savings account that's invested in the Lincoln Financial Stable Value Fund, which has a guaranteed interest rate of 1.4%. After the emergency account is funded to a certain level, contributions will go into the retirement savings account, with a BlackRock target-date series serving as the default investment.

The retirement income component provides monthly distributions through managed payouts that are “calculated, but not guaranteed, to last a saver’s lifetime,” the announcement noted.