Legislation introduced earlier this month in both the House and the Senate would require all but the smallest U.S. companies to automatically enroll employees in an individual retirement account (IRA). The Auto IRA concept is an effort to ensure that U.S. workers have enough money to retire on, given estimates that half of employees do not have access to a retirement savings plan at work.
It's not clear, however, whether the legislation will make much progress this year on Capitol Hill. Kathryn Ricard, senior vice president of retirement policy at the ERISA Industry Committee, a Washington organization that represents large companies on benefits issues, says concerns about the cost of such a program could delay its passage.
In addition, legislators have a lot of other issues competing for their attention at this point and are running out of time to deal with them, Ricard notes. "It's a low likelihood this would pass both chambers in this session and become law," she says.
Both the Senate legislation, introduced by Sen. Jeff Bingaman (D-N.M.), and the House bill, introduced by Rep. Richard Neal (D-Mass.) require companies that do not offer a retirement plan and have more than 10 workers to sign workers up for Auto IRA. Companies would deduct 3% from workers' paychecks to deposit in the IRA, and employees would be free to change their contribution or opt out of the program altogether.
The measures attempt to sweeten the requirement a bit for companies. Both bills would give employers a tax credit in the first two years they participate in the Auto IRA program. And the Senate bill would implement the requirement gradually, applying it to companies with 100 workers or more in the first year, 50 or more in the second, 25 or more in the third, and 10 or more in the fourth year.
Both the House and Senate give employees a choice of either a traditional or Roth IRA, but the Senate uses a Roth IRA as the default, while the House version uses a traditional IRA as the default.
For more on this issue, see Auto IRA on the Way?