The proposal small-business owners will be most interested in is the “automatic IRA.” The proposed program would require employers who don’t offer a retirement plan to enroll employees in a direct-deposit individual retirement account. (Employees would have the choice to opt out.) Companies that have 10 or fewer employees or have been in business less than two years would be exempt.
Some 78 million workers do not currently have access to a retirement plan through the workplace. According to The Retirement Security Project, automatic enrollment has been shown to strongly increase participation in retirement plans, especially among low- and middle-income workers.
Supporters of the automatic IRA idea point out that it would be fairly simple for most small businesses to implement, and would help small companies compete with bigger ones that offer retirement benefits.
AARP, which supports the plan, notes that automatic IRAs are simplified accounts owned by individuals--not employer-sponsored retirement plans—so they are much less complex. There are no plan-qualification rules or IRS approvals; you don’t have to comply with ERISA; no employer contributions are required; and the employer has no responsibility to choose, hold or manage investments. Employers simply serve as a conduit helping employees put their own money into their own IRAs. Employers who don’t offer direct deposit would send contributions to the IRS along with tax withholdings.
A survey by the National Federation of Independent Business showed that nearly 50 percent of small businesses with 10 to 19 employees use an outside payroll firm. Of those that do payroll in-house, more than 80 percent use software. For companies that use payroll providers or software, automatic IRAs would easily integrate into the systems they already use. To offset administrative costs, employers would get a tax credit of $25 for each employee who chooses to save in an automatic IRA (up to $250) for two years.
Most companies that still do payroll by hand would be exempt from the proposal, although they could participate if they so desire.