Maine Retirement Mandate: MERIT Rules for Employers

Maine MERIT makes employers without a retirement plan register or certify exemption. Deadlines, penalties, auto-IRA mechanics, and the 401(k) option.

TL;DR

Maine requires covered employers with no qualifying retirement plan to facilitate MERIT, a payroll deduction Roth IRA. Employers with fewer than five employees are exempt. The statutory default is 5 percent of wages, rising 1 percent a year to 10 percent. Employers contribute nothing and are not fiduciaries. Maximum penalties run $20, then $50, then $100 per covered employee.

Author

Nick AnisimovFirstHR Founder

What MERIT Is

MERIT is the brand name of the Maine Retirement Savings Program, the state-facilitated arrangement that satisfies the mandate. The letters stand for Maine Retirement Investment Trust, and the thing itself is a payroll deduction Roth IRA (an individual retirement account funded with after-tax pay) rather than an employer-sponsored plan.

Definition

MERIT

The Maine Retirement Investment Trust, the operating name of the Maine Retirement Savings Program established under Title 5, chapter 7-A of the Maine Revised Statutes. Covered employers that do not sponsor a qualifying retirement plan must register and facilitate automatic payroll deductions into individual Roth IRAs owned by their employees. Participation is voluntary for employees and mandatory for covered employers. Employers make no contributions, choose no investments and hold no fiduciary role. A state board governs the program and a private administrator runs it day to day.

The statute is unusually direct about wanting employers to leave the state program for a plan of their own. Among the required elements of the program, Title 5 instructs the board to promote expanded retirement saving by encouraging employers in the State that would otherwise be covered employers to instead adopt a specified tax-favored retirement plan (Maine Revised Statutes Title 5, section 173).

Sponsoring your own plan is not a loophole. It is the outcome the law prefers.

Maine is one of a growing group of states running this design, and the thresholds differ enough between them that a business with people in several states cannot assume one answer covers all of it.

Who Counts as a Covered Employer

You are covered if you operate a business or nonprofit in Maine, you have not offered a qualifying retirement plan in the current or two preceding calendar years, and you have been in business during both the current and the preceding calendar year. Employers with fewer than five employees are relieved of the duty to offer the program, though they may join voluntarily.

The definition in Title 5, section 171 is broader than most owners expect. It reaches any person or entity engaged in a business, industry, profession, trade or other enterprise in the State, whether for profit or not for profit, and it excludes only government entities and businesses too new to have operated across two calendar years.

Test	What Maine law says	Where employers slip
Employee count	An employer with fewer than five employees is not required to offer the program, under section 173	Part-time staff count, so a business that feels small can sit above the line
Time in business	An employer not in business during both the current and the preceding calendar year is outside the definition	A second-year business becomes covered without anybody noticing
Existing plan	No specified tax-favored plan offered, in form or operation, in the current or two preceding calendar years	Terminating a plan pulls you back under the mandate
Who is a covered employee	Age eighteen or older with wages allocable to Maine, brought in at 120 days of employment by board rule	The 120th day, not the hire date, is the registration trigger
Who is excluded	Railway Labor Act employees, Taft-Hartley plan participants, and government employees	Seasonal staff who pass 120 days are in, not out
Employer type	For-profit and nonprofit alike; government entities sit outside the definition	Small nonprofit boards assume the mandate is for businesses only

The nonprofit point is worth stating plainly, because it is easy to miss. A Maine charity with five or more employees and no plan is a covered employer in exactly the way a for-profit business is.

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The Dates That Already Passed

Maine ran two staged registration dates in 2024, both of which have closed, and the statute set an outer limit of December 31, 2024 for every covered employer to have the program on offer. A business that crossed into coverage later gets a rolling deadline of its own instead of a statewide one.

The larger covered employers went first

Under the staged rollout Title 5, section 173 authorizes the board to run, covered employers at or above fifteen covered employees had a registration date of April 30, 2024. That date is gone and it does not come back.

Everyone else followed two months later

The rest of the covered employers at or above the five employee floor carried a registration date of June 30, 2024. The statute set the backstop separately: Title 5, section 173 says a covered employer shall offer the program to its covered employees no later than December 31, 2024.

Businesses that crossed the line afterward

A business that becomes covered later gets its own clock rather than a statewide date, and the board rules frame it as registering within twelve months of becoming a covered employer. The program publishes that as a June 30 deadline for newly eligible businesses and contacts you with an access code when it identifies you.

Every original statewide deadline closed in 2024, so a business notified back then and still unregistered is not early. It is late, and the penalty clock has already started running. Only newly eligible businesses still have a registration date ahead of them.

The practical consequence for an established business is that the question is no longer when you have to do this. It is how far behind you are and what that costs. The program now tells any business notified before January 1, 2026 that its registration deadline has passed, which is a different posture from the patient outreach of the launch period.

If you cannot find the access code, that is a solvable problem rather than a dead end. The program offers an online access code lookup, and the same code plus your federal Employer Identification Number (EIN) is what opens both registration and exemption certification. What you cannot do is treat the absence of a friendly reminder as evidence that nothing is owed.

How the Penalty Escalates

The penalty is assessed per covered employee per year, and the statute caps it on a schedule that steps up on July 1. The maximum reached $50 per covered employee on July 1, 2026 and moves to $100 on July 1, 2027.

$20

maximum per covered employee, July 1, 2025 to June 30, 2026

$50

maximum per covered employee, July 1, 2026 to June 30, 2027

$100

maximum per covered employee, on or after July 1, 2027

days to cure after you knew, or should have known

Title 5, section 173 charges for each calendar year, or portion of a year, in which a covered employee was neither enrolled nor opted out, and keeps charging each later year the person stays unenrolled. Total each year's rung times your roster, starting with the $20 rung that began on July 1, 2025, before deciding this is a small number.

Warning

Reasonable Cause Is Narrower Than It Sounds

No penalty applies where the employer did not know the failure existed and exercised reasonable diligence, and none applies where a diligent employer brings itself into compliance within the 90-day period beginning on the first date it knew or should have known. The statute then closes the gap: an employer is deemed to have known once the program has communicated with it three times, and lack of reasonable cause is established by failing to enroll after three communications. Ignored mail is not diligence. The Attorney General represents the board in enforcement and collection.

There is a separate exposure that no cure period touches. Section 173 says failing to remit a payroll deduction on time is subject to the same penalties that apply to employer misappropriation of employee wage withholdings, on top of the per-employee penalty. Money you already took out of somebody's pay is a different category of problem from a late registration.

How the Auto-IRA Works

Every setting that matters in this program belongs either to the state board or to the employee. None of them belongs to you, which is why the mandate is administratively light even though it is legally binding.

A 5 percent default, set by statute

Title 5, section 173 requires that, unless the employee says otherwise, a covered employee automatically contributes 5 percent of salary or wages. The board is authorized to change that default rate at its discretion, so the 5 percent is a statutory starting point rather than a fixed minimum.

One point of escalation each January

The statute permits an annual increase of no more than 1 percent of wages per year, up to a maximum of 10 percent. The program applies it each January to savers who have been enrolled at least six months, and any employee can decline the increase in any year.

A Roth IRA the employee owns

Section 173 provides that the IRA receiving contributions is a Roth IRA, with authority for the board to add a traditional option later. Deductions therefore come out after tax, and the account belongs to the saver rather than to your business.

Thirty days for the employee to decide

After you register somebody, the program communicates with them directly and gives them thirty days to opt out or customize before automatic enrollment takes effect. Anyone who opts out is automatically reenrolled later, with a fresh chance to opt out, at intervals the board sets, and the statute limits that to no more than once a year.

A rate the saver controls

Savers can move their rate down to 1 percent or up to 100 percent of pay, subject to the federal IRA contribution and income limits that section 173 expressly preserves. Your job is to apply the number the program hands you, not to advise on what it should be.

Read that list again and notice how few decisions are yours. The rate is the employee’s, the investments are the board’s, and the account is the saver’s. You supply a roster and a payroll file.

The Roth default is the part that catches employers out when somebody asks about their pay stub. Contributions come out after tax, so a saver sees take-home pay drop by the full amount rather than watching taxable wages fall the way a traditional 401(k) deferral would. That is worth understanding before you explain a new deduction line, even though the program handles the education itself.

The federal ceiling is the other constraint people miss. Because these are IRAs, they inherit IRA limits. The IRS set the 2026 IRA contribution limit at $7,500, with a $1,100 catch-up at age 50 and over, and the Roth income phase-out starting at $153,000 of modified adjusted gross income for single filers and $242,000 for joint filers (IRS Notice 2025-67, announced November 13, 2025).

What Payroll Does Each Cycle

Your duties come down to four things: register, give the program your roster so it can offer your people the choice, deduct at the rate they land on, and send the money on time. The program does everything else.

Set up the account, enter your pay schedule and how payroll is run, then add employees. A bookkeeper or payroll administrator can be brought in to do it with you.

Load every covered employee

Put on the roster everyone who is eighteen or older, earns Maine wages and has reached 120 days of employment. Somebody missing from it never gets contacted, never gets a choice, and becomes the gap an inquiry finds.

Let the thirty-day window run

The program communicates with employees directly about their options. You are not enrolling anybody and you are not recommending the program, which is a distinction worth repeating to managers.

Record the outcomes and start deducting

At the end of the window you apply each participating saver's rate and withhold after tax. Nobody who opted out gets a deduction.

Remit on the statutory schedule

Send contributions as soon as they can reasonably be separated from company assets, and no later than the 15th day of the month after the one in which they were withheld. This is the duty with real liability attached.

Keep the roster honest

Register new hires before their 120th day, mark leavers as terminated, and process rate changes as savers make them. Missed terminations create reconciliation work nobody enjoys.

Notice what is not on that list. You do not choose investments, answer performance questions, process distributions or manage accounts. Those belong to the board and its administrator, and saying so out loud is the best short answer to an owner asking how much work this is going to be.

What is on the list produces three records worth keeping outside the program portal: a roster with the 120th day calculated for every hire, a remittance log showing each withholding reaching the program before the deadline, and a registration record holding the account numbers and dates you will be asked for later. Keep all three in one file that whoever covers payroll in your absence can pick up and read.

MERIT Roster and Remittance Log

	A	B	C	D	E	F	G	H	I	J	K	L
1	Employee name	Age 18 or over (Y/N)	Hire date	120th day of employment	Date added to the program roster	Decision: enrolled, opted out, or no response	Date the decision was recorded	Contribution rate applied	Rate effective from	Termination date	Date marked terminated	Notes
2	Replace this row with your first employee	A covered employee is 18 or over with wages allocable to Maine		Count it forward from the hire date and register before it arrives		The program collects this, you record it		The rate the program hands you, not one you set			Missed terminations create reconciliation work later
3
4
5
6
7
8
9
10
11

No Money In, No Fiduciary Duty

Two hard boundaries define the employer role here. You cannot put money in, and you cannot be held responsible for how the money performs.

You may not put in a dollar

Title 5, section 173 requires the program to provide that employer contributions by a covered employer are not required or permitted. A match here is not merely pointless. It is forbidden. Employer money into retirement savings requires a plan you sponsor yourself, which is exactly the alternative the statute is trying to encourage.

You are not the fiduciary

Section 175 states that a covered employer is not and may not be considered a fiduciary over the program, and is not liable for employees deciding to participate, for the board’s investment choices, for program administration or investment performance, or for any adverse tax consequence a participant runs into.

The single exposure that survives both protections is mechanical: money you withheld from a paycheck and failed to send on. Section 173 treats that failure the way Maine treats an employer holding on to wage withholdings.

Those two boundaries are the most useful thing to understand about the state program, because they turn the choice between MERIT and a real plan into a genuine decision rather than a formality.

A sponsored plan brings fiduciary duty, a plan document, and in most cases a Form 5500 filing. The state program brings none of that, and buys you none of the advantages either (Maine Revised Statutes Title 5, section 175).

It also means that claiming to offer retirement benefits does very little work if all you do is facilitate MERIT. You are providing access to a savings mechanism any individual could open on their own. That is genuinely useful for people who would otherwise save nothing, but it is not the same thing as a plan you fund.

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Certifying the Exemption

Certifying the exemption means telling the program, with your access code and EIN, that you sponsor a qualifying plan. Sponsoring one removes the obligation, but once the program has written to you, doing nothing looks identical to noncompliance from the state's side of the desk.

The board's own rule for the program, Chapter 101, says who gets those notices: businesses it has identified as covered employers that have no current Form 5500 on file with the U.S. Department of Labor. The same rule says a plan sponsor that is never sent a notice is not required to take any action.

Section 171 defines a specified tax-favored retirement plan as one tax-qualified under or described in, and satisfying the requirements of, Internal Revenue Code sections 401(a), 401(k), 403(a), 403(b), 408(k), 408(p) or 457(b). In plain terms: a 401(k), a pension or profit sharing plan, a 403(b), a SEP IRA, a SIMPLE IRA or a 457(b).

The plan must be effective in form or operation, so a plan that exists on paper and covers nobody is thin ground to stand on.

Tip

Certify Even When You Are Under the Threshold

The program asks employers with fewer than five employees to certify their exemption with the same access code rather than ignore the notices, and it takes minutes. The value is not legal, it is practical: it stops the correspondence, which stops the next envelope from being read as junk mail by whoever opens the company mail. If the access code is gone, look it up online. Section 173 also says an employer with fewer than five employees may still offer the program at its option under board rules, so being under the floor is a choice rather than a bar.

MERIT or a Plan of Your Own

The useful comparison is not which one is better but which problem you are solving. If the problem is an obligation you want gone at no cost, the state program solves it completely. If the problem is that you or your senior people want to save real money, only a plan solves it.

Dimension	MERIT	Your own 401(k)
Employee contribution limit	IRA limits: $7,500 for 2026, plus a $1,100 catch-up at 50 and over	$24,500 in elective deferrals for 2026, plus a catch-up
Income phase-out	Roth phase-out starts at $153,000 single and $242,000 joint for 2026	No income limit on making elective deferrals
Employer contributions	Not required or permitted by statute	Permitted, and deductible
Fiduciary responsibility	None, under Title 5 section 175	Yes, including investment selection and monitoring
Cost to the employer	No employer cost to facilitate	Setup and recordkeeping fees, plus any contributions
Federal tax credits	Not applicable	Startup and auto-enrollment credits for new plans
Annual filings and testing	None for the employer	Nondiscrimination testing and generally a Form 5500
Portability	The Roth IRA belongs to the saver and moves with them	Employee money is theirs; employer money can vest over time

The first two rows settle the question for most owner-operated businesses. An IRA limit of $7,500 is under a third of the 401(k) deferral limit, and the Roth phase-out can shut an owner out of the state program entirely while the mandate still applies to the business. In a Maine professional services firm that combination is close to standard.

Pros

You want the obligation resolved at no cost and with no plan administration

Nobody in the business wants to save more than an IRA allows

Cash flow will not support employer contributions in any form

You have no appetite for fiduciary duty or annual filings

Turnover is high and portable individual accounts suit your people better

Cons

Owners or senior staff want to defer well above the IRA limit

An owner’s income puts the Roth phase-out in play

You want to make employer contributions and use vesting for retention

You want the federal startup credits, which do not apply to facilitating a state program

You are hiring against employers who fund a plan rather than facilitate savings

What Sponsoring a Plan Costs

A first 401(k) costs less than most small employers assume, because federal credits absorb a real share of setup and administration in the early years. That does not make it free, and the ongoing obligations are genuine.

By the numbers

Federal Credits for New Plans

The IRS retirement plans startup costs tax credit covers a share of qualified startup costs, capped at $5,000 per year for three years. The credit is 100 percent of eligible costs for an employer with 50 or fewer employees who earned at least $5,000 the year before, and 50 percent for 51 to 100 such employees. The yearly cap is the greater of $500 or the lesser of $250 per eligible employee who is not highly compensated or $5,000. A separate credit of $500 per year for three years is available to an eligible employer that adds an automatic enrollment feature to a new or existing plan. Source: Internal Revenue Service.

What you take on in exchange is a plan document, a recordkeeper, fiduciary responsibility for investment selection, and annual compliance work. The practical mechanics of getting a first plan running are covered in the walkthrough on setting up a startup 401(k), and the obligations that come with sponsorship sit inside the ERISA framework rather than outside it.

Two design questions decide most small business outcomes. The first is whether you need a safe harbor design to sidestep annual testing, which depends on how much the owners want to defer relative to everybody else.

The second is how much of the flexibility from recent federal retirement legislation applies to your situation, since several of those provisions were written for employers making a first attempt at a plan. Neither question exists under MERIT, which is precisely the trade you are weighing.

Where Maine Employers Slip

Employers slip in six places, and the first is the most expensive.

Believing a good benefits package makes you exempt is first. Health insurance, paid leave and a bonus scheme are irrelevant here. Only a specified tax-favored retirement plan removes the obligation.

Waiting for a future deadline is second. Both staged registration dates closed in 2024 and the statutory backstop passed with them, so an established business has no wave left to join. Only a newly eligible one still has a date ahead of it.

Leaving part-time staff out of the count is third. A covered employee is defined by age and Maine wages, not by hours, so the threshold arrives sooner than a full-time headcount suggests.

Missing the 120-day mark on new hires is fourth. Registration is tied to that day rather than to an annual enrollment window, which makes it an onboarding task rather than a once-a-year chore.

Assuming a plan exempts you automatically is fifth. It exempts you legally and not administratively. If a notice arrives, it means the program found no current Form 5500 for you, and it cannot see your plan until you certify.

Letting remittances slip is sixth, and it is the only one no cure period fixes. Withheld money that does not reach the program carries the penalties Maine attaches to misappropriating wage withholdings.

What worked for me

The move that unstuck the Maine owner I mentioned was refusing to treat it as a benefits question at all. We asked one thing instead: does anybody here want to save more than an IRA allows? Two people did, and one of them was over the Roth income limit anyway, which meant the state program could not have helped her personally even while her business was legally required to offer it. That turned a compliance chore into a plan decision inside a single call, and the compliance chore got solved as a by-product. Where the answer is no, the reverse holds, and registering or certifying takes an afternoon.

Nick Anisimov, FirstHR founder

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Key takeaways

1MERIT is the Maine Retirement Investment Trust, the operating name of the Maine Retirement Savings Program under Title 5, chapter 7-A.

2A covered employer operates in Maine, has been in business across the current and preceding calendar year, and has offered no qualifying plan in the current or two preceding years; employers with fewer than five employees are relieved of the duty but may join voluntarily.

3Both staged registration dates closed in 2024 against a December 31, 2024 statutory backstop, and only newly eligible businesses still have a registration date ahead of them.

4Maximum penalties run per covered employee per year at $20 through June 30, 2026, $50 through June 30, 2027, then $100, with a 90-day cure that starts once you knew or should have known, and three program communications count as knowing.

5The statutory default is 5 percent of wages into a Roth IRA the employee owns, escalating up to 1 percent a year to a 10 percent maximum, with thirty days for each employee to opt out.

6Employer contributions are neither required nor permitted and you are not a fiduciary under section 175, so company money needs a plan you sponsor, such as a 401(k) with a $24,500 deferral limit for 2026 and federal startup credits.

Frequently Asked Questions

What is the Maine retirement mandate?

It is a Maine law that obliges private employers without a retirement plan of their own to put their workers into the Maine Retirement Savings Program, branded MERIT and short for Maine Retirement Investment Trust. The program sits in Title 5, chapter 7-A of the Maine Revised Statutes and works as a payroll deduction into a Roth IRA that each employee owns. You are a covered employer if you run a for-profit or nonprofit operation in Maine, have been in business in both this calendar year and the one before it, and have not offered a specified tax-favored retirement plan during this year or the two years before it. Employers with fewer than five employees need not offer it under section 173, though they may join voluntarily.

Does an employer have to contribute to MERIT?

No, and Maine law does not allow it. Under Title 5, section 173 the program has to be built so that a covered employer’s own contributions are neither required nor permitted, which rules out a company match as a matter of law rather than preference. Every dollar in MERIT comes from employee payroll deductions into each saver’s own Roth IRA, and facilitating it costs the employer nothing beyond the administrative work of running the deduction. An employer who wants company money going into retirement savings has to sponsor a plan of its own. The law leaves that route open on purpose, and the statute directs the board to encourage employers to take it.

What is the penalty for not registering with MERIT?

Maine caps the penalty per covered employee per year and raises the cap on a fixed schedule in Title 5, section 173: up to $20 per covered employee from July 1, 2025 to June 30, 2026, up to $50 from July 1, 2026 to June 30, 2027, and up to $100 from July 1, 2027 onward. Each calendar year, or part of one, in which an employee was neither enrolled nor opted out counts toward the charge. Two situations carry no penalty: the employer genuinely did not know of the failure and exercised reasonable diligence, or a diligent employer fixes the problem within 90 days of learning about it. Three contacts from the program are treated as knowledge, though, and the Attorney General handles enforcement and collection.

What is the default contribution rate for MERIT?

Five percent of salary or wages. Under Title 5, section 173, a covered employee is enrolled at that rate automatically unless the employee chooses another one, and the board may change the default whenever it sees fit. The same section allows the rate to rise by no more than 1 percent of wages a year, up to a ceiling of 10 percent, and the program applies the step each January to savers enrolled for at least six months. Because the account is a Roth IRA, the money is deducted after tax, so it reduces take-home pay and does not reduce taxable wages. Employees can choose any rate from 1 percent to 100 percent of pay, within federal limits.

Can employees opt out of MERIT?

Yes, at any time and without giving a reason. Employees choose whether to take part, even though the employer has no choice about facilitating the program. After you register somebody, the program reaches that person directly and allows thirty days to opt out or adjust the account before automatic enrollment starts, so opting out inside that window means no deduction is ever taken. Someone who opts out later can stop contributing and can rejoin whenever they like. Title 5, section 173 also provides that people who opted out are automatically reenrolled, with the chance to opt out again, at intervals the board chooses but no more frequently than once a year, which means an opt-out is not necessarily permanent.

Which retirement plans exempt an employer from MERIT?

A 401(k), a pension or profit sharing plan, a nonprofit’s 403(b), a SEP IRA, a SIMPLE IRA or a 457(b) all qualify. Title 5, section 171 calls them specified tax-favored retirement plans and defines the term as a plan, program or arrangement tax-qualified under, or described in and meeting the requirements of, Internal Revenue Code sections 401(a), 401(k), 403(a), 403(b), 408(k), 408(p) or 457(b). The plan has to be effective in form or operation, and it counts if you offered it in the current year or either of the two calendar years before. Sponsoring one lifts the obligation. If the program has written to you, certify the exemption with the access code from that notice. Under the board’s rule, a plan sponsor who never receives a notice does not have to act.

Is a 401(k) better than MERIT for a small business?

Neither is better across the board. They are different products, and the contribution limits usually settle the choice. MERIT deposits into a Roth IRA, so IRA ceilings apply: for 2026 the IRS limit is $7,500, with a $1,100 catch-up from age 50, and under Notice 2025-67 the Roth income phase-out begins at $153,000 of modified adjusted gross income for single filers and $242,000 for joint filers. A 401(k) lets employees defer $24,500 in 2026, allows employer contributions too, and comes with federal startup tax credits. The trade-off is a plan document, testing and annual filings. Owners who want to save seriously usually need the plan.

Who counts toward the MERIT employee threshold?

A covered employee under Title 5, section 171 is anyone eighteen or older employed by a covered employer with wages or other compensation allocable to Maine during a calendar year, which means part-time staff count and cannot be quietly left out of the tally. The statute excludes employees covered by the federal Railway Labor Act, employees on whose behalf the employer contributes to a Taft-Hartley multiemployer pension trust fund, and employees of federal, state, county or municipal government. Part-time, seasonal and temporary staff are included only as far as the board’s rules allow, and the rule brought them in at 120 days of employment, which is also the deadline for registering a new hire.

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