OCEAN CITY – Inspired by research suggesting that automatic enrollment in a
retirement savings plan boosts worker participation to as much as 95%, the
Obama administration has proposed legislation that would create the
"Automatic IRA." If enacted, it would require small and midsize
businesses that do not offer a retirement plan to enroll their employees
automatically in individual retirement accounts.
But one plan type does not fit all needs, and employers may do well to
consider other retirement plan options.
"By acting now, you can put the plan you want in place rather than
have the Automatic IRA forced on you," says Michele Wickles, Managing
Director and Product Management Executive for Bank of America
Merrill Lynch. "You can enable your employees to contribute for
retirement, plus potentially receive tax credits to help offset the startup and
administrative costs of creating the plan."
Business owners will also pave the way for their own retirement by putting
the right plan in place. In fact, in a Merrill Lynch survey,
small-business owners ranked retirement plans funded by their companies as
their most important source of retirement income.
President Obama’s proposed legislation would require companies that have
been in business for more than two years and that employ more than 10 workers
to withhold 3% of an employee’s pay, to a maximum $5,000, and deposit the funds
in an IRA unless the employee opts out or alters the contribution amount.
Beyond the Automatic IRA, business owners might consider four alternatives,
which all offer tax savings: A traditional 401(k) plan, a Simplified Employee
Pension (SEP) plan, a profit-sharing plan, or a Simplified Matching Plan for
"Your financial advisor can walk you through factors to consider and
the available plan options in choosing the right retirement plan for your
business," says Wickles. "In light of the recent market turmoil,
people need to save for retirement now more than ever. Business owners have a
unique opportunity to build something that not only helps retain their top
employees but also helps them save more for their own life after work."
Merrill Lynch Wealth Management Advisor. She can be reached at 410-213-8520.)