Helping people to save more for retirement is a popular idea in Congress these days. But this episode of What’s Ahead warns that a big change that just cleared a critical committee in the House of Representatives would do far more harm than good. Moreover, it would be an administrative nightmare.
The proposal would force just about all nongovernment entities with five or more employees to institute an automatic IRA or 401(k)-type retirement plan if they don’t already have one or face substantial fines.
Sounds nice, but in the real world real problems would abound with this plan.
It would impose substantial administrative and legal costs on small businesses that are already barely profitable.
It would almost double the number of IRA-like accounts by the end of next year. Most would be small and therefore unprofitable for providers, and, operationally, that would just not be doable.
As for the supposed beneficiaries, who are primarily low-income workers—the scheme will fail. Under its provisions, workers would kick in 6% of their pay, scaling up to 10% within four years. This means a big cut in take-home pay for the people who can least afford it. Most of these workers will drop out.