Congressman Richard Neal, D-Mass., has introduced legislation that would allow companies to set up automatic payroll deposit Individual Retirement Accounts, or Auto IRAs, for workers who do not have access to employer-provided qualified pension plans.
The concept of automatic IRAs was proposed in President Obama’s budget and supported by the Middle Class Task Force chaired by Vice President Joe Biden. Neal introduced his bill on Tuesday.
“Our bill would require employers to automatically enroll employees in an Auto IRA unless the employee opts out,” said Neal, who chairs the Subcommittee on Select Revenue Measures on the House Ways and Means Committee. “These are ‘set it and forget it’ payroll deposit accounts.”
He noted recent research from Fidelity that showed only one in 10 workers who are eligible for automatic enrollment in employer-provided plans proactively opted out of the plan. The non-partisan Retirement Security Project has estimated that the Auto IRA proposal could raise net national savings by nearly $8 billion annually.
Biden praised the proposed legislation. “Contributions would be purely voluntary,” he said. “Employees would be free to opt out at any time. The legislation also provides exemptions, simplified procedures and a tax credit to make implementation easy for small employers. Creating automatic IRAs is a common-sense proposal that has received bipartisan support in the past, and I congratulate Congressman Neal for his leadership in this matter."
Biden noted that nearly 80 million American workers currently have no employer-based retirement plan and automatic IRAs could help improve the retirement security of tens of millions of Americans.
The Auto IRA proposal, which was jointly developed by scholars from the Brookings Institution and the Heritage Foundation, has garnered widespread support, including from the AARP and the Minority Business Roundtable, and has been endorsed in editorials around the country, according to Neal. The bill introduced by Neal is known as the Automatic IRA Act of 2010.
Similar legislation was introduced in the Senate last Friday by Jeff Bingaman, D-N.M. In Bingaman's bill, employers would receive a $250 tax credit for each of the first two years that the plan was in operation, even if they contributed nothing to the accounts. However, companies that failed to offer an automatic IRA option to employees would be subject to an excise tax of $100 for each employee who was supposed to be covered. Employers who made an error would have the opportunity to self-correct. Contributions to automatic IRA accounts could qualify for the savers' tax credit.