Auto-IRA Provision in House Tax Bill Violates Securities Laws: ASA

It also creates three acceptable options of plans which businesses can offer: 401(k) plans, SIMPLE IRAs, and automatic payroll deduction IRA.

If a "technical fix" isn't made to the Build Back Better budget reconciliation legislation, it "would require small businesses to use 401(k) plans as that would be the only option available to them," Iacovella wrote.

"While 401(k) plans are an excellent option for some businesses, they are not appropriate for every business. The cost to establish a 401(k), the time and complexity of compliance, the fiduciary responsibility, and other obligations would cause many small businesses without sophisticated HR departments to violate the bill's mandate," Iacovella said.

Also, businesses that would like to establish a SIMPLE IRA or automatic IRA "for their employees but cannot because of technical legal flaws in the legislation could face a $10 per employee per day penalty," Iacovella wrote. "This outcome would needlessly harm small businesses and their workers across America."

The bill, as explained by Renu Zaretsky of the Tax Policy Center in a Wednesday blog post, would "require most employers that don't offer retirement plans to start offering them in 2023 and to auto-enroll their workers. While workers could opt-out, decades of research suggests relatively few will."