There is no question that boosting retirement savings is not only a good idea but essential, but I’m not sure this is the best way. For many employers this will be an administrative nightmare. For many workers confusion will be the order of the day.
I wonder how politicians rationalize their rhetoric that half of Americans are living paycheck to paycheck while at the same time seek to make saving up to 10% of pay automatic? The reality is the paycheck to paycheck claim is not real.
Should this become law, banks and other financial groups who already have administrative capability in this field will see a windfall.
Auto IRA provision Specifically, the automatic IRA proposal would require employers that have been in existence for at least two years, do not sponsor a retirement plan, and employ five or more people to automatically enroll those employees in IRAs or 401k-type plans. To offset administrative costs, employers would receive a tax credit.
Starting on Jan. 1, 2023, the provision would require employers to deduct at least 6% from employee paychecks and automatically increase that savings rate by 1% per year until reaching 10%. Employees would be free to opt out or change their savings rate.
Companies with five or fewer employees and those which have been in business for less than two years would be exempt from the requirement. The mandate wouldn’t cover employees under 21 and would require employers to automatically enroll part-time employees working more than 500 hours a year for at least two consecutive years.
Companies that fail to comply would be fined $10 per employee per day for up to three months.