In mid-April, President Barack Obama unveiled his budget for the upcoming year. Although the budget is essentially a “wish-list” for the President and most of its proposals and recommendations are likely to fall by the wayside at some point, the number of retirement related items in this year’s budget is causing many clients to take notice. Below we discuss the six proposals included in this year’s budget that directly relate to retirement accounts so that you can answer the questions that clients are, or soon will be, asking.
1) Mandatory Auto-Enrollment IRAs for Certain Small Businesses
The Proposal – Employers in business for at least two years that have more than 10 employees would be required to offer auto-enrollment IRAs to their employees. Contributions to employees’ IRAs would be made on a payroll-deduction basis. Employees would be able to elect how much of their salary they wish to contribute to their IRA (up to the annual IRA contribution limit), including opting out entirely. In absence of any election, 3% of an employee’s salary would be contributed to their IRA.
The Reason – For nearly 15 years, Congress, along with the Treasury Department and IRS, have been taking steps to increase Americans’ retirement savings contributions by making it easier for employers to establish auto-enrollment in company plans. However, many small businesses choose not to adopt a retirement plan due to the potential costs and/or compliance burden. Many small employers also do not take low-cost steps to make retirement savings easier for employees, such as through the adoption of payroll-deduction IRAs.
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