A bill before Congress that would increase worker retirement savings would be a burden to small employers, according to a report from Aite Group.
The Automatic IRA Act of 2010 would offer employees who currently lack an employer-sponsored retirement plan the opportunity to default 3% of their income in a Roth individual retirement account through a payroll deduction.
If the bill is passed, employers with 100 or more employees would have to offer the auto-enrollment IRA retirement plans in the first year. Smaller employers would be required to offer it in subsequent years.
Employers that already offer a workplace retirement savings plan would be exempt.
Although Aite calls the government's efforts a "noble charter," its report says the processing procedure for the proposed plan would require employers to make many small monthly payments that could prove to be "unduly onerous."
Instead, Aite proposes integrating the IRA savings into the annual tax refund process, which would reduce the number of payments by 12.
Participants would then see "the direct tax benefit of saving for their retirement, and eligibility for tax credits would be directly integrated into the process," the report says. This would eliminate the operational burden on employers and save the government $500 in tax credit per employer.
The report named three financial companies that would not have to make major changes to comply with the Automatic IRA Act: Fidelity Investments, which offers direct deposit from payroll into IRAs; Charles Schwab Corp., which offers direct deposit from payroll into IRAs, and whose MoneyLink establishes an automated account transfer from a checking account into a designated Schwab account; and Vanguard Group, which offers a service similar to those of Fidelity and Schwab.
Vanguard would likely have to make some minor adjustments to its infrastructure to establish a payroll deposit into a Roth IRA.