An estimated 1 million Marylanders work for businesses that do not offer a retirement savings plan. Legislation that becomes law Friday will give them state-sponsored and private alternatives.
Maryland workers who don't have access to 401(k)s or other federal plans may choose to have money deducted from their paychecks and placed in a retirement account intended to supplement Social Security.
The new law — at least four years in the making — puts Maryland at the forefront of a national effort among states to fill what proponents call a gap left by the federal government, which they say has made it too difficult for smaller businesses and their employees to set up retirement accounts.
"Maryland has an extremely robust law," said Sarah Gill, legislative representative for state government affairs at the AARP in Washington. "I'd say it was one of the best in the country."
The law is one of more than 250 passed by the General Assembly this year that will take effect Friday, the start of the state fiscal year.
Other new laws are intended to help revitalize disadvantaged neighborhoods in Baltimore and elsewhere, to reduce the cost of birth and death certificates, to provide an annual incentive up to $7.5 million for Northrop Grumman to keep at least 10,000 jobs in Maryland, and to ban powdered alcohol.
The retirement system measure is meant to help employees or small businesses that find it too cumbersome or expensive to set up a plan under federal rules.
According to the Brookings Institution, 52 percent of employers with 50 to 99 workers do not offer retirement plans. Among companies with fewer than 10 employees, the proportion rises to 80 percent.
With Americans living longer, advocates say, more workers are in danger of reaching retirement with little money beyond what comes from Social Security and Medicare.
"This is kind of trying to head off a crisis that we see coming," said Del. C. William Frick, the Montgomery County Democrat who sponsored the bill in the House of Delegates. "It's a big step forward and it's going to be a national model."
Though the new law takes effect Friday, it's not expected to be fully implemented until 2018.
Proponents describe it as a minimally intrusive system under which the state will oversee but not manage a retirement plan for businesses. Employers are not required to contribute to the plan. They may use their existing automated payroll systems to make voluntary deductions on behalf of workers who choose to participate.
Gary Kleinschmidt, head of retirement at Legg Mason Global Asset Management, said he "couldn't be happier" with the way the legislation turned out.
Kleinschmidt, who studied the issue while serving on a task force named by former Gov. Martin O'Malley, said Maryland has come up with a simpler and more flexible solution than other states have.
The key, he said, is that it gives employers a choice between going to the private sector to set up a plan or participating in a state-run plan.
He said Legg Mason would "absolutely" be interested in competing to run the state-sponsored option.
Opponents, which include the Maryland Chamber of Commerce and other business groups, see it as government overreach.
"It's our position that it still puts government in the position of picking winners and losers," said Mike O'Halloran, director of the National Federation of Independent Business in Maryland. "That's something that should be left to the private sector."
O'Halloran said his members worry that the new system could morph into one in which employer contributions become mandatory.
"The bill that passes this year is the proverbial camel's nose under the tent," he said. "We're worried about what's going to come next."
The legislation, backed by Democratic leaders of the General Assembly, became a point of partisan contention in the House but drew bipartisan support in the Senate. More than 80 percent of House Republicans opposed it, but it passed unanimously in the Senate.
Gov. Larry Hogan signed the bill instead of just letting it become law, as he did with many other Democratic initiatives.
Opposition in the Senate was largely defused by a provision that creates an incentive for businesses to participate rather than a sanction for those that don't.
It waives the annual corporate filing fee of $300 for businesses that agree to let their workers sign up. If enough businesses agree, the deal could constitute the largest fee rollback approved by the legislature this year.
"It's the biggest expansion of retirement savings since the New Deal and it's a tax cut for small businesses," said Sen. James C. Rosapepe, a Prince George's County Democrat who has long supported the concept.
Sen. Andrew A. Serafini, a Washington County Republican who was instrumental in negotiations, compared the legislation to the landmark Justice Reinvestment Act. Both passed this year in a show of bipartisan cooperation.
Serafini, a financial planner, said he originally opposed the bill but is happy with the final compromise. He said he likes language that directs the state to hire an investment firm to run the state plan after a competitive bidding process.
Many small businesses would like to offer retirement plans for their employees, Serafini said, but have a hard time dealing with the cost of setting up a federal 401(k) or individual retirement account. He estimated those costs at between $1,000 and $1,500. He said business owners fear they could be audited.
The law limits business owners' obligation and exempts the roughly 5 percent of businesses that do their payroll by hand instead of using payroll services.
Opponents say workers are free to set up their own IRAs at any bank. But Gill of the AARP said only about 5 percent of workers do so.
"What this bill does is take that 5 percent and turn it into upward of 90 percent," she said.
Former Lt. Gov. Kathleen Kennedy Townsend, who chaired the task force that laid the groundwork for the bill, told a House committee this spring that many Marylanders nearing retirement age have no savings at all.
"Here's the problem of human nature: Without an employer plan, people do not invest on their own," she said. "All the education and prodding in the world will hardly move the needle. Despite many retirement savings options, it's just easier for people to spend money than save it."
Serafini said it's important to help people understand the importance of saving. But he doesn't think one law will accomplish that.
"I would hope that we will focus our effort on financial education so people know how to manage money," he said.
New laws taking effect
These are among the other new laws taking effect Friday:
Strategic demolition: Requires the governor to include $26.5 million in next year's budget for demolition of vacant buildings and revitalization of neighborhoods in Baltimore.
Encouraging voter registration: Expands the number of state agencies, including colleges and universities, that provide access to electronic voter registration.
Birth and death certificates: Reduces from $24 to $10 the cost of birth and death certificates. This was pared down from a much longer list of fee reductions proposed by Gov. Larry Hogan.
Northrop Grumman tax break: Provides a $7.5 million annual tax credit to Northrop Grumman to keep at least 10,000 jobs in Maryland — a companion to a $20 million Sunny Day fund grant.
Vacancies in statewide offices: Puts on the 2016 general election ballot a proposal to require the governor to fill vacant U.S. Senate, comptroller and attorney general positions with a replacement from the party of the last candidate elected.
Powdered alcohol ban: Bans the sale of alcoholic beverages in powder or crystalline form.
Pub crawl permits: Establishes a new class of alcoholic beverage license for promoters of "pub crawls" in Baltimore.
College affordability: Creates a state income tax credit of up to $5,000 for repayment of student debt and prohibits public colleges from barring students from courses because of small debts.