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U.S. Senator Jeff Bingaman (D-New Mexico) has introduced the Automatic IRA Act of 2010, which, when fully phased in, would give nearly 42 million Americans an “easy, effective way to take responsibility for their fiscal futures and plan for a secure retirement,” according to a press release. Bingaman's Automatic IRA Act of 2010 (S. 3760) enables nearly all employees who work for a private business with more than 10 workers and whose employer does not already offer a retirement plan to contribute to retirement savings through payroll deductions. Worker contributions would be deposited into their own Individual Retirement Account (IRA), ultimately managed by the same banks, mutual funds, insurance carriers, and other institutions that currently provide IRAs, according to a press release. Employers will receive a $250 tax credit to cover the administrative costs of setting up the IRA account, but they will not be allowed to make a contribution to it. Employers will have no ERISA fiduciary liability if they use a provider that is on a list of approved providers or uses R-Bonds. The employer must transmit employee contributions by the end of the month following the month in which the cash would have been paid had it not been contributed to the Automatic IRA (an excise tax will apply if the employer fails to remit on time), and though employers will be subject to self-dealing prohibitions, an employer’s sole disclosure responsibility will be to provide the employee with a standardized form explaining the program and investment decisions. This form will be either attached to the IRS Form W-4 or available from a central website or through IRA providers, according to a summary of the bill. The bill sets the default employee contribution rate at 3% (or such other percentage prescribed in regulations), and employees will have the choice of contributing to either a traditional IRA or a Roth IRA (if no choice is made, automatic IRA accounts will be established, by default, as Roth IRA accounts). Employees can raise or lower their contribution percentage, or can opt-out entirely from the program. However, an employer that fails to offer an automatic IRA for its employees is subject to an excise tax of $100 for each employee who was supposed to be covered. Employers who make an innocent error will have the opportunity to self-correct, according to a summary of the bill.
U.S. Senator Jeff Bingaman (D-New Mexico) has introduced the Automatic IRA Act of 2010, which, when fully phased in, would give nearly 42 million Americans an “easy, effective way to take responsibility for their fiscal futures and plan for a secure retirement,” according to a press release.
Bingaman's Automatic IRA Act of 2010 (S. 3760) enables nearly all employees who work for a private business with more than 10 workers and whose employer does not already offer a retirement plan to contribute to retirement savings through payroll deductions. Worker contributions would be deposited into their own Individual Retirement Account (IRA), ultimately managed by the same banks, mutual funds, insurance carriers, and other institutions that currently provide IRAs, according to a press release.
Employers will receive a $250 tax credit to cover the administrative costs of setting up the IRA account, but they will not be allowed to make a contribution to it.
Employers will have no ERISA fiduciary liability if they use a provider that is on a list of approved providers or uses R-Bonds. The employer must transmit employee contributions by the end of the month following the month in which the cash would have been paid had it not been contributed to the Automatic IRA (an excise tax will apply if the employer fails to remit on time), and though employers will be subject to self-dealing prohibitions, an employer’s sole disclosure responsibility will be to provide the employee with a standardized form explaining the program and investment decisions. This form will be either attached to the IRS Form W-4 or available from a central website or through IRA providers, according to a summary of the bill.
The bill sets the default employee contribution rate at 3% (or such other percentage prescribed in regulations), and employees will have the choice of contributing to either a traditional IRA or a Roth IRA (if no choice is made, automatic IRA accounts will be established, by default, as Roth IRA accounts). Employees can raise or lower their contribution percentage, or can opt-out entirely from the program.
However, an employer that fails to offer an automatic IRA for its employees is subject to an excise tax of $100 for each employee who was supposed to be covered. Employers who make an innocent error will have the opportunity to self-correct, according to a summary of the bill.
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