ANNAPOLIS — Businesses that do not offer employees membership in a pension or 401(k) plan would be entered into a no-cost, state-run program under legislation being considered by Maryland lawmakers.
House Bill 1318, sponsored by Del. Tom Hucker, D-Montgomery, would force the more than 93,000 Maryland businesses (roughly half of all businesses in the state) that have more than five employees but no retirement savings plan to join the state plan, to which their employees would contribute 3 percent of wages.
Businesses would not contribute to the fund and neither would the state, which would cede management of the fund to a private entity. Hucker said employees’ contributions should pay for the program, while providing a modest return on investment.
The bill is necessary, he said, because too few people have enough money saved to live comfortably once they retire.
“The state has a need to do something for the 1.25 million Maryland workers who don’t have a retirement plan that’s offered by their employer,” Hucker said. “If we don’t, there will just be increasing pressure on our social services.”
Hucker’s bill is modeled after California legislation that became law last fall, but is still in a pre-implementation study phase. The Maryland legislation would also require a market analysis before being implemented, ensuring that enough employees — a critical mass of contributors would be needed to achieve the scale necessary to cut down on individual employee costs —would agree to contribute 3 percent of their earnings into a pension fund .
While employees could opt out, businesses would be forced to participate in the program — unless they already offer their employees access to a retirement saving plan.
Businesses might currently avoid such benefits because of the cost and the complexity of managing such programs, Hucker said. Setting up a statewide retirement plan, under which businesses would bear no responsibility for their employees’ investments, would save employers money and time.
The only thing businesses would have to do, he said, is add another line to their payroll deductions.
“Only the state has the reach to set up something of this scale and require employers that don’t have a retirement plan to offer it to their employees,” Hucker said. “It’s a great service to businesses.”
State Treasurer Nancy K. Kopp is supportive of the concept of creating a defined benefit pension system for private sector employees, but stopped short of providing full support for Hucker’s bill. Susanne Brogan, the deputy treasurer for public policy, said Monday that Kopp “thinks this is a topic deserving of attention and further discussion.”
Some legislators, however, are skeptical. Del. Melony G. Griffith, a Prince George’s County Democrat who chairs the state’s oversight committee on pensions and sat in on a recent hearing for Hucker’s bill in the House of Delegates’ Economic Matters Committee, said H.B. 1318 may be too far ahead of its time.
“It’s an innovative idea that has not been tested or tried,” Griffith said. “It has some kinks that need worked out.”
Conservative lawmakers, meanwhile, don’t want the state to decide what businesses must do. House Minority Whip Jeannie Haddaway-Riccio, R-Middle Shore, said she wasn’t comfortable mandating that employers enter into the private retirement savings system.
“Individual employees can opt out, but every business in Maryland would be required to participate,” Haddaway-Riccio said. “I think there is merit to the idea, but I would prefer a system that is voluntary.”
Hucker said his bill would be an aide to businesses, not a burden on them.
“It’s not much of a mandate if it doesn’t have any cost to it,” he said. “It’s essentially a free service; the only way to reach the scale that a plan like this needs to succeed is if all businesses participate.”