Mandatory IRAs May Burden Small Employers, Business Group Says

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Mandatory IRAs May Burden Small Employers, Business Group Says
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By Margaret Collins and Alexis Leondis

Jan. 25 (Bloomberg) -- U.S. President Barack Obama’s effort to increase retirement savings by requiring all businesses to offer automatic IRA accounts may face opposition from small companies, says a Washington-based trade group.

Obama said the plan, part of a tax package aimed at middle- income Americans proposed today, would let employees automatically enroll in direct-deposit retirement accounts and expand matching tax credits. The administration hasn’t released a cost estimate.

“When small businesses are struggling to stay afloat, we oppose mandates such as this that stand to create a new administrative burden,” said Molly Brogan, vice president of public affairs for the National Small Business Association, in an e-mailed statement.

Sixty-four percent of small-business owners said revenue declined in the past 12 months, the highest percentage since 1993, according to a December national survey of 450 small- business owners conducted by the NSBA, which represents more than 150,000 small businesses. “I don’t know that there’s been enough thought to how certain small businesses, restaurants in particular, would comply with this if they don’t use a payroll company or participate in direct deposits,” said Brogan.

Almost 80 million Americans don’t have retirement accounts through their employers, according to the government. About 63 percent of low-income workers may have no savings at retirement to supplement Social Security, according to a report by the Government Accountability Office.



Fill the Gap



“The automatic IRA has the advantage of being able to fill in the gap,” said David C. John, who developed an automatic-IRA proposal with Mark Iwry, now deputy assistant treasury secretary for the Retirement Security Project, a joint venture of Georgetown University’s Public Policy Institute and the Brookings Institution in Washington.

A worker automatically enrolling in a retirement savings account would likely make contributions through payroll deductions into one of several investments including a stable- value fund, a special-issued U.S. savings bond, and a target- date fund that automatically shifts investments from more aggressive assets to more conservative ones closer to retirement, John said.

The accounts would likely be Roth IRAs where taxes are paid upfront to lower the budgetary cost rather than taxing withdrawals during retirement. Employees would be able to opt- out of the savings program, John said.



Investment Limit




The automatic IRA may have the same annual investment limit as existing IRAs, which is $5,000 for savers under the age of 50 and $6,000 for savers 50 and over, John said. An employer would have access to a Web site created by the government that would help them find a bank, brokerage firm or mutual fund company to administer the accounts. A freelancer or contract employee would also have the opportunity to participate, he said.

The administration also proposed today expanding a tax credit, known as the “saver’s credit,” to match 50 percent of the first $1,000 of contributions by families earning as much as $65,000 and provide a partial credit to families earning up to $85,000. The tax credit would be refundable so that families would receive it even if they had no tax liabilities.

Senator Jeff Bingaman, a New Mexico Democrat, and Representative Richard Neal, a Massachusetts Democrat, previously introduced bills to establish automatic enrollment in IRAs. Bingaman is working on a new version of the bill, said spokeswoman Jude McCartin.

“We expect that a final bill will be ready for introduction in the coming weeks, and the goal will be to get it enacted before the end of the year,” McCartin said.




--With assistance from Hans Nichols and Roger Runningen in Washington. Editors: Rick Levinson, Steve Geimann.



To contact the reporter on this story: Margaret Collins in New York at +1-212-617-8925 or mcollins45@bloomberg.net.



To contact the editor responsible for this story: Rick Levinson at +1-212-617-3377 or rlevinson2@bloomberg.net.