Overview
Title
To amend the Internal Revenue Code of 1986 to provide rules for automatic contribution retirement plans and arrangements.
ELI5 AI
H.R. 7293 is about making it easier for people to save money for when they are older by having their jobs automatically put money into special savings accounts. It also wants to give small businesses some reward money to help with this, but they might face some money penalties if they don't follow the rules.
Summary AI
H.R. 7293, titled the "Automatic IRA Act of 2024," aims to amend the Internal Revenue Code to establish rules for automatic contribution retirement plans and arrangements. This bill mandates employers to offer automatic IRA arrangements that meet specific notice, eligibility, contribution, investment, and fee requirements. It also provides tax credits for small employers that comply and sets penalties for those who do not. Additionally, it preempts state laws that could inhibit these arrangements, ensuring employers are not subject to conflicting state requirements if they maintain a compliant arrangement.
Published
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Bill Statistics
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AnalysisAI
The proposed legislation, known as the Automatic IRA Act of 2024, aims to amend the Internal Revenue Code of 1986 to establish rules for automatic contribution retirement plans and arrangements. This initiative is designed to encourage both employers and employees to participate in retirement savings plans, facilitating broader access to retirement savings for American workers.
General Summary
The bill primarily focuses on the implementation of automatic enrollment in Individual Retirement Accounts (IRAs) by employers. This means that employees would be automatically signed up for retirement savings plans, with the ability to opt-out if they choose. The legislation includes detailed provisions outlining eligibility, contribution, and other requirements to ensure that these automatic plans run smoothly. Additionally, the bill provides tax incentives for small businesses that implement these automatic IRA arrangements, attempting to ease the financial burden of setting up such plans. The bill also clarifies how these federal provisions interact with existing state laws.
Summary of Significant Issues
One of the main issues with the bill is its complex and technical language, particularly in Section 2, which makes it challenging for individuals and small businesses to understand. This complexity can hinder the public's engagement and understanding, likely reducing political and civilian support. There are concerns about potential financial burdens on small businesses due to penalties for failing to implement these plans, as well as the logistical challenges of complying with extensive administrative requirements. The bill's definitions, particularly with respect to what constitutes an 'eligible employer,' lack clarity, potentially allowing larger businesses to exploit benefits meant for smaller entities. Additionally, the bill's preemption over state laws could lead to legal ambiguities at the state level.
Public Impact
The general public could see benefits from increased retirement savings accessibility if the bill effectively encourages more workers to save for retirement automatically. A broad implementation of automatic retirement plans might help bridge the retirement savings gap many Americans face. However, the complexity of the bill may discourage some small businesses from participating, potentially leaving gaps in retirement coverage for employees of these smaller entities.
Impact on Stakeholders
Employees: Employees would have easier access to retirement savings plans. Automatic enrollment could increase participation rates in retirement savings programs, providing long-term financial benefits. However, the complexity of the information available might confuse individuals not familiar with how such plans operate.
Small Businesses: The bill offers tax credits for businesses setting up these plans. However, smaller businesses may face difficulties due to the administrative burden and risk of penalties, leading to potential operational and financial challenges.
Larger Employers: Larger employers may view this legislation as beneficial if they can navigate the requirements easily due to more resources. However, they might face scrutiny if they exploit benefits intended for smaller entities.
State Governments: The bill's preemption of state laws could lead to conflicts, particularly in states with existing payroll deduction savings programs, posing legal and logistical challenges.
In conclusion, while the Automatic IRA Act of 2024 aims to promote retirement savings among American workers, its complex structure and potential financial obligations present challenges. Careful consideration and potentially revised clarity and support measures could be necessary to make the bill more accessible and equitable for all stakeholders.
Financial Assessment
In analyzing H.R. 7293, the "Automatic IRA Act of 2024," the bill makes several references to financial aspects, especially concerning taxes and credits for employers. These financial components are designed to encourage businesses to adopt automatic IRA arrangements, which are envisioned as a way to enhance retirement savings for employees.
Tax Credits and Incentives
One of the prominent financial features of the bill is the introduction of a tax credit for small employers who set up automatic IRA arrangements. The bill specifies that small employers can receive a credit of $500 per year for up to three years. This financial incentive is meant to offset some of the costs associated with establishing and maintaining these retirement plans. However, an issue arises with how "eligible employer" is defined. There is ambiguity regarding size limitations beyond not maintaining an eligible employer plan within the last two years, which could potentially allow larger entities to benefit from a program primarily aimed at smaller businesses. This may lead to ethical concerns where entities not intended as primary beneficiaries might capitalize on these taxpayer-funded credits.
Penalties for Noncompliance
The bill outlines financial penalties for employers who fail to maintain or facilitate automatic contribution plans or arrangements. The penalties are set at $10 per day per employee during periods of noncompliance. Starting in 2027, these penalties will be adjusted annually for inflation, taking into account the cost of living adjustments. Small businesses may find these penalties burdensome, especially given the complexity in defining the noncompliance period. Such financial impacts could be significant and pose operational challenges for smaller entities struggling to comply with the detailed requirements.
Exemptions and Limitations
Certain exemptions to these penalties are specified, such as for employers with no more than 10 employees each earning at least $5,000, governmental plans, church plans, or new businesses existing for fewer than two years. These provisions attempt to mitigate financial strain on very small businesses or certain eligible organizations. Yet, the language describing these exemptions involves subjective terms, like "reasonable cause," which could result in inconsistent enforcement and legal ambiguities regarding who truly qualifies for these exemptions or penalty waivers.
Financial Burden and Administrative Costs
Employers, particularly small businesses, may face financial burdens due to the extensive administrative requirements in the bill. These include providing notices to employees, handling electronic filing, and facilitating payroll deductions into IRAs. Such administrative tasks can require additional resources and potentially lead to increased operational costs that the tax credit may not fully cover. This raises concerns about the fairness and practicality of imposing these requirements on small businesses without clearer support mechanisms.
Overall, while H.R. 7293 introduces financial incentives aimed at promoting retirement savings, the potential financial impacts on small businesses through penalties and administrative costs create a complex interaction with the bill’s objectives. Clarity in the definitions and provisions could help mitigate some of these challenges, ensuring that the financial references in the bill align with its intended benefits.
Issues
The complex and technical language throughout Section 2 on Automatic Contribution Plans or Arrangements makes it difficult for average readers to understand, especially regarding tax codes, exceptions, eligibility, and exclusions. This lack of accessibility could reduce public engagement and understanding, potentially impacting political support.
Section 4980J discusses potential penalties for noncompliance with maintaining automatic contribution plans or arrangements, which may impose significant financial burdens on small businesses. The complexity of defining the noncompliance period and adjusting tax amounts for inflation add to the burden, emphasizing the potential financial impact on small employers.
Section 3's definition of 'eligible employer' lacks clarity on if other size limitations apply beyond not maintaining an eligible employer plan, potentially allowing larger entities to take advantage of intended benefits for small employers. This could create discrepancies and ethical concerns.
The lack of specificity in Section 4 regarding preemption of state law in terms of prohibiting or restricting automatic IRA arrangements can lead to ethical and legal ambiguities affecting state-level payroll deduction savings programs and employer obligations.
Section 2 raises concerns about the burden on employers, especially small businesses, due to the extensive administrative requirements related to notices and electronic forms. These burdens could disproportionately affect small businesses, leading to financial and operational challenges.
The subjective language used in Section 4980J for penalty waivers, such as 'reasonable cause and not to willful neglect', may lead to inconsistencies and ethical concerns in the enforcement of penalties for noncompliance.
Section 4 references external documents and sections of the Internal Revenue Code, which complicates understanding for employers and state authorities, accentuating the need for additional legal expertise to navigate obligations and compliance.
The potential ambiguity in Section 2 related to the definition of 'employer' and 'qualified State law' might lead to different interpretations. This could result in legal and bureaucratic challenges as stakeholders attempt to apply or challenge components of the bill.
Sections
Sections are presented as they are annotated in the original legislative text. Any missing headers, numbers, or non-consecutive order is due to the original text.
1. Short title; table of contents, etc Read Opens in new tab
Summary AI
The Automatic IRA Act of 2024 introduces a system where employees can be automatically enrolled in an Individual Retirement Account (IRA) by their employers, provides tax credits to small businesses that adopt these automatic IRA plans, and clarifies how such arrangements interact with state laws. Additionally, it specifies that changes made under this Act refer to modifications of the Internal Revenue Code of 1986.
2. Automatic contribution plan or arrangement Read Opens in new tab
Summary AI
The document outlines the rules for implementing automatic contribution plans, including defined contribution plans with automatic enrollment, and automatic IRA arrangements in the workplace. It specifies eligibility, notice, contribution, investment, fee, and income requirements for employers offering these plans, imposes penalties for non-compliance, and provides exemptions for certain employers, like those with fewer than ten employees or new businesses under two years old.
Money References
- — “(i) IN GENERAL.—This paragraph shall not apply with respect to any participant whose vested account balance is $200,000 or less at the time of distribution.
- — “(1) IN GENERAL.—The amount of the tax imposed by subsection (a) on any failure with respect to an employee shall be $10 for each day in the noncompliance period with respect to such failure.
- — “(A) IN GENERAL.—In the case of any failure relating to maintaining or facilitating a plan or arrangement in a calendar year beginning after 2026, the $10 amount under paragraph (1) shall be increased by an amount equal to such dollar amount multiplied by the cost-of-living adjustment determined under section 1(f)(3) for the calendar year determined by substituting ‘calendar year 2025’ for ‘calendar year 2016’ in subparagraph (A)(ii) thereof.
- “(B) ROUNDING.—If any amount adjusted under subparagraph (A) is not a whole dollar amount, such amount shall be rounded to the nearest whole dollar amount.
- (3) OVERALL LIMITATION FOR UNINTENTIONAL FAILURES.—In the case of failures which are due to reasonable cause and not to willful neglect— “(A) GENERAL RULE.—The tax imposed by subsection (a) for failures during the taxable year of the employer shall not exceed $500,000.
- “(d) Tax not to apply in certain cases.—This section shall not apply in the case of— “(1) any employer that employed no more than 10 employees each of whom received at least $5,000 of compensation from the employer during the prior calendar year, “(2) any employer with respect to a governmental plan (within the meaning of section 414(d)), “(3) any employer with respect to a church plan (within the meaning of section 414(e)), or “(4) any employer that has been in existence for fewer than 2 years, taking into account all predecessor employers. “
4980J. Failure to maintain or facilitate automatic contribution plans or arrangements Read Opens in new tab
Summary AI
Employers are required to maintain or facilitate automatic contribution plans, and if they fail to do so, they must pay a tax of $10 per day of noncompliance. However, there are exceptions and limitations to this rule, such as exemptions for small businesses with fewer than 10 employees, new businesses, and cases where the failure was unintentional or corrected within a certain timeframe.
Money References
- — (1) IN GENERAL.—The amount of the tax imposed by subsection (a) on any failure with respect to an employee shall be $10 for each day in the noncompliance period with respect to such failure.
- — (A) IN GENERAL.—In the case of any failure relating to maintaining or facilitating a plan or arrangement in a calendar year beginning after 2026, the $10 amount under paragraph (1) shall be increased by an amount equal to such dollar amount multiplied by the cost-of-living adjustment determined under section 1(f)(3) for the calendar year determined by substituting “calendar year 2025” for “calendar year 2016” in subparagraph (A)(ii) thereof.
- (B) ROUNDING.—If any amount adjusted under subparagraph (A) is not a whole dollar amount, such amount shall be rounded to the nearest whole dollar amount.
- (2) TAX NOT TO APPLY TO FAILURES CORRECTED WITHIN 9½ MONTHS.—No tax shall be imposed by subsection (a) on any failure if— (A) such failure was due to reasonable cause and not to willful neglect, and (B) such failure is corrected during the 9½-month period beginning on the first date any of the persons referred to in subsection (e) knew that such failure existed, or exercising reasonable diligence would have known. (3) OVERALL LIMITATION FOR UNINTENTIONAL FAILURES.—In the case of failures which are due to reasonable cause and not to willful neglect— (A) GENERAL RULE.—The tax imposed by subsection (a) for failures during the taxable year of the employer shall not exceed $500,000. (B) TAXABLE YEARS IN THE CASE OF CERTAIN CONTROLLED GROUPS.—For purposes of this subparagraph, if not all persons who are treated as a single employer for purposes of this section have the same taxable year, the taxable years taken into account shall be determined under principles similar to the principles of section 1561. (4) WAIVER BY SECRETARY.—In the case of a failure which is due to reasonable cause and not to willful neglect, the Secretary may waive part or all of the tax imposed by subsection (a) to the extent that the payment of such tax would be excessive relative to the failure involved.
- (d) Tax not to apply in certain cases.—This section shall not apply in the case of— (1) any employer that employed no more than 10 employees each of whom received at least $5,000 of compensation from the employer during the prior calendar year, (2) any employer with respect to a governmental plan (within the meaning of section 414(d)), (3) any employer with respect to a church plan (within the meaning of section 414(e)), or (4) any employer that has been in existence for fewer than 2 years, taking into account all predecessor employers. (e) Liability for tax.—The employer shall be liable for the tax imposed by subsection (a) on a failure.
3. Credit for certain small employer automatic IRA arrangements Read Opens in new tab
Summary AI
The section introduces a tax credit of $500 for small employers who start automatic IRA arrangements for their employees, provided they have not maintained a qualified employer plan for the three preceding years. This credit, effective for taxable years starting after December 31, 2024, will be part of the general business credit and applies to the first three years of the arrangement.
Money References
- , in the case of an eligible employer, the small employer automatic IRA arrangement credit determined under this section for any taxable year in the credit period is $500.
45BB. Credit for certain small employer automatic IRA arrangements Read Opens in new tab
Summary AI
For eligible employers, there is a $500 tax credit available for three years if they start an automatic IRA arrangement for their employees and haven't had a qualified employer plan in the previous two years.
Money References
- (a) General rule.—For purposes of section 38, in the case of an eligible employer, the small employer automatic IRA arrangement credit determined under this section for any taxable year in the credit period is $500.
4. Treatment of automatic IRA arrangements under State law Read Opens in new tab
Summary AI
The section explains that the new law will override any state laws that either ban or limit automatic IRA arrangements. Employers who use these IRA setups won't have to comply with state programs for payroll savings unless they are following a specific kind of state law that qualifies.