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.

Nick Anisimov

FirstHR Founder

Benefits•

August 11, 2026

•

16 min

Maine Retirement Mandate

Maine calls its program MERIT, and facilitating it is a payroll duty rather than a benefit you chose to offer. Who counts as a covered employer, why every original registration date has already passed, how the penalty escalates each July, how the savings mechanics run without a dollar or a decision from you, and the honest case for sponsoring a 401(k) instead

The Maine owner who called me about this had done the sensible thing and asked her bookkeeper, who told her the state program was optional because she already offered a good health plan. Health coverage has nothing to do with it. By the time we worked out that she had been a covered employer since 2024, the registration deadline was two years behind her and the penalty schedule had already moved up a rung.

That is the pattern with this mandate. It is not a benefits decision anybody sits down and makes. It is a payroll obligation that applies by operation of law, arrives in the mail with an access code, and gets more expensive every July until somebody deals with it.

What follows is who Maine treats as a covered employer, why every original registration date is already behind you, what the penalty actually costs and how it escalates, how the savings mechanics run without a dollar or a decision from you, and the honest case for sponsoring a 401(k) instead. I build people and records tooling for businesses without an HR department at FirstHR. FirstHR is an onboarding and HR platform rather than a payroll provider or a retirement plan provider, and this is general information rather than tax or legal advice.

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.

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 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. 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. The comparison in the guide to state retirement plan mandates is the faster way to see where else you are exposed.

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 catches people every time. A Maine charity with a handful of staff and no plan is a covered employer in exactly the way a for-profit business is. Obligations like this one sit alongside everything else in the Maine compliance requirements that apply to employers in the state.

Still Using Spreadsheets for Onboarding?

Automate documents, training assignments, task management, and track onboarding progress in real time.

See How It Works

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 board rule that brought the program live, 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 rule frames 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 do I have to do this. It is how far behind am I and what does that cost. 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 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 every July. 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 attaches the charge to each calendar year, or portion of a year, during which a covered employee was neither enrolled nor opted out, and it keeps charging for each later year the person stays unenrolled. Multiply the current rung by a roster and by the number of years since 2024 before deciding this is a small number.

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 statuteTitle 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 it is a floor set in law rather than a program preference.

One point of escalation each JanuaryThe 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 ownsSection 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 decideAfter 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 can be automatically reenrolled later, but the statute limits that to no more than once a year.

A rate the saver controlsSavers 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, put the choice in front of your people, 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

Anyone eighteen or older with Maine wages who has reached 120 days belongs on the roster. 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 segregated from company assets, and no later than the 15th day of the month following the month of withholding. 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.

Companies Using FirstHR Onboard 3x Faster

Join hundreds of small businesses who transformed their new hire experience.

See It in Action

No Money In, No Fiduciary Duty

Two hard boundaries define the employer role here, and both of them run in your favor. You cannot put money in, and you cannot be held responsible for how the money performs.

You may not put in a dollarTitle 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 fiduciarySection 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.

This is the single most useful thing to understand about the state program, because it turns 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 the sentence we offer retirement benefits is doing 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. Genuinely useful for people who would otherwise save nothing, and not the same thing as a plan you fund.

Certifying the Exemption

Sponsoring a qualifying plan removes the obligation, and it does not remove the paperwork. You certify the exemption with the same access code and EIN, because doing nothing looks identical to noncompliance from the state's side of the desk.

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.

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 your post. 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, it is 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 decide 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.

Federal Credits for New Plans

The IRS retirement plans startup costs tax credit covers a percentage of qualified startup costs, capped at $5,000 per year for three years, with the percentage and the cap driven by the number of eligible employees who are not highly compensated. 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

Six patterns, and the first one 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. Until you certify, the program cannot see the plan.

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.

Key Takeaways

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

A 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.

Both 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.

Maximum 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 closes once the program has communicated with you three times.

The 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.

Employer contributions are not required or permitted and you are not a fiduciary under section 175, so a 401(k) is the only route to employer money, $24,500 in 2026 deferrals and federal startup credits.

Frequently Asked Questions

What is the Maine retirement mandate?

It is a state law requiring private employers that do not sponsor a retirement plan to enroll their workers in the Maine Retirement Savings Program, branded MERIT, which stands for Maine Retirement Investment Trust. The program is a payroll deduction Roth IRA arrangement created under Title 5, chapter 7-A of the Maine Revised Statutes. A covered employer is a for-profit or nonprofit entity operating in Maine that has not offered a specified tax-favored retirement plan during the current or two preceding calendar years and that has been in business during both the current and the preceding calendar year. Section 173 relieves employers with fewer than five employees of the duty to offer it, though they may join voluntarily.

Does an employer have to contribute to MERIT?

No, and Maine law does not allow it. Title 5, section 173 requires the program to provide that employer contributions by a covered employer are not required or permitted, so a match is off the table by statute rather than by choice. The program is funded entirely by employee payroll deductions into each saver’s own Roth IRA, and facilitation costs the employer nothing beyond the administrative work of running the deduction. If you want company money going into retirement savings, that requires sponsoring your own plan. The mandate is deliberately designed to leave that door open, and the statute directs the board to encourage employers to walk through it.

What is the penalty for not registering with MERIT?

Penalties are assessed per covered employee per year and escalate on a fixed schedule in Title 5, section 173. The maximum is $20 per covered employee from July 1, 2025 to June 30, 2026, $50 per covered employee from July 1, 2026 to June 30, 2027, and $100 per covered employee on or after July 1, 2027. They apply for each calendar year or portion of a year in which an employee was neither enrolled nor opted out. No penalty applies where the employer did not know of the failure and exercised reasonable diligence, and none applies where a diligent employer fixes the problem within 90 days of learning about it. The Attorney General handles enforcement and collection.

What is the default contribution rate for MERIT?

Five percent. Title 5, section 173 provides that unless a covered employee specifies otherwise, that employee automatically contributes 5 percent of salary or wages, and the board may change the default rate at its discretion. The statute also permits an annual increase of no more than 1 percent of wages per year up to a maximum of 10 percent, which the program applies each January to savers who have been enrolled at least six months. Because the account is a Roth IRA, the deduction comes out after tax and shows up as a reduction in take-home pay rather than in taxable wages. Employees can set their own rate anywhere 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. Participation is voluntary for the employee even though facilitation is mandatory for the employer. Once you register somebody, the program contacts them directly and gives them thirty days to opt out or customize their account before automatic enrollment takes effect, so opting out inside that window means no deduction is ever taken. Anyone who opts out later can stop contributions and can rejoin whenever they want. Title 5, section 173 also allows the board to automatically reenroll people who opted out, at intervals of its choosing 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?

Title 5, section 171 uses the phrase specified tax-favored retirement plan, defined as a plan, program or arrangement that is tax-qualified under or described in and satisfies the requirements of Internal Revenue Code sections 401(a), 401(k), 403(a), 403(b), 408(k), 408(p) or 457(b). In practice that covers a 401(k), a pension or profit sharing plan, a 403(b) for a nonprofit, a SEP IRA and a SIMPLE IRA. The plan has to be effective in form or operation, and the lookback runs to the current year plus the two preceding calendar years. Sponsoring one removes the obligation, but you still have to certify the exemption with the program using your access code.

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

It is a different product rather than a better version of the same one, and the contribution limits usually settle it. MERIT sends money into a Roth IRA, so it inherits IRA limits: the IRS set the 2026 IRA contribution limit at $7,500 with a $1,100 catch-up at age 50, and the Roth phase-out begins at $153,000 of modified adjusted gross income for single filers and $242,000 for joint filers under Notice 2025-67. A 401(k) allows $24,500 in elective deferrals for 2026, permits employer contributions, and carries federal startup tax credits. It also brings plan documents, 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.

Ready to transform your onboarding?

7-day free trial No credit card required

Start Your Free Trial

Benefits