President Obama wants legislation passed that would require all businesses to offer automatic retirement accounts. The devil’s in the details.
The plan, part of a tax package aimed at middle- income Americans, would let employees automatically enroll in direct-deposit IRA accounts and expand matching tax credits.
The White House released the plan accompanied by a Government Accountability Office estimate that about 80 million Americans don’t have retirement accounts through their employers and 63% of low-income workers have little or no savings at retirement. Here are the details of the plan:
- Workers who don’t opt-out would automatically enroll in a retirement savings account probably through payroll deductions into one of several investments including what’s known as a “stable-value fund” consisting of special U.S. savings bonds and a “target-date fund” that automatically shifts investments from more aggressive assets to more conservative ones as a worker gets closer to retirement.
- The accounts would be the same as Roth IRAs where taxes are paid upfront.
- The accounts would have the same annual investment limits as traditional IRAs: $5,000 for employees under the age of 50 and $6,000 for those 50 and over.
- Employers would have access to a government Web site that would help them find a bank, brokerage firm or mutual fund company to administer the accounts.
- Contract employees would be eligible for the plan.
- Workers who join the plan would get a tax credit that matches 50% of the first $1,000 of contributions by families earning as much as $65,000; families that earn up to $85,000 would get some fraction of that credit.
The National Small Business Association, which represents 150,000 members, has already issued statements opposing the plan. Among the NSBA’s reasons for opposition:
- The plan would create another layer of administrative burdens on owners.
- Many small businesses that don’t use a payroll contractor or have direct-deposit would find the plan impractical to run.
Democrats in the House and Senate say the plan could be enacted before the end of the year.