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Study Suggests Auto IRA Compliance Burden Will Be Easy

With Congress set to consider legislation implementing automatic retirement arrangements, a new report by Smart maintains that the legislation will enhance retirement security and be simple for small employers to comply with. 

Smart is a global fintech firm that offers recordkeeping platforms for MEPs and PEPs in the United States. Directed at policymakers, the report, “Smart Strongly Supports Auto IRA/Plan Legislation to Enhance Retirement Security,” describes how requiring employers to maintain a retirement plan can lead to a substantial leap in overall plan participation and retirement coverage for Americans.

Smart also surveyed more than 800 small UK businesses that use the Smart Pension Master Trust platform to offer a retirement plan, which revealed that offering a retirement plan can be done in a way that is simple for small employers to comply. In fact, the majority of small employers surveyed said the administration of retirement plans is considered “routine” or “easy.”

According to the findings, 94% of businesses with 10 or fewer employees report spending an hour or less administering the plan each month. Notably, it is only among businesses with more than 100 employees that a majority report spending more than an hour each month on plan administration. Only 8% of all surveyed employers reported that the plan administration was a “significant additional burden.”

Following legislation in the UK requiring large and small employers to offer a retirement plan, private sector retirement plan participation rose from 42% in 2012 to 86% in 2019, the report notes. In addition, the increase in participation was consistent across all participant groups, including those that are typically the least engaged, such as young, part-time workers, low earners and those working for micro-employers. 

Smart observes that while the proposed U.S. legislation is similar in many aspects to the UK legislation, it contains several features that make it even easier and less expensive for employers to comply with, such as:

  • The smallest U.S. employers are exempt from the requirement to maintain a retirement plan. Employers with five or fewer employees, employers that have not been in existence for two years, churches and governments are exempt from the requirement to maintain a plan. 
  • The U.S. proposal does not require employer contributions.
  • The U.S. proposal offers tax credits to cover the administrative costs of setting up the plan for the smallest employers. Tax credits cover the entire cost of the plan for five years for the smallest employers (25 or fewer employees), while other small businesses have choices of different credits to cover at least 50% of their costs.  
  • Plans in effect when the legislation is adopted will not have to be modified.

“The data is very clear. The administration of retirement plans is not as burdensome as some have believed, but instead is simple and routine for small employers,” says Catherine Reilly, Director of Retirement Solutions at Smart. “This legislation symbolizes a great leap toward the future of retirement security that Americans deserve.”