In an effort to close the retirement plan coverage gap, U.S. Senator Sheldon Whitehouse, D-Rhode Island, introduced legislation designed to help millions of Americans save for a financially secure retirement through an automatic payroll deduction Individual Retirement Account, or Auto-IRA.
The “Automatic IRA Act of 2019” would require employers that do not provide another qualified retirement plan and that have more than 10 employees to enroll workers automatically in an Auto-IRA, unless the employee opts out. Employers would receive tax credits to defray the costs of setting up the accounts.
According to the text of the bill, a government or entity described in Internal Revenue Code Section 414(d) and a church or a convention or association of churches which is exempt from tax under Section 501 would be exempt from the mandate.
An employer with employees in a state that has a state-run automatic IRA program for private-sector employees and is mandated to participate in that program would also be exempt.
The bill would require an automatic deferral of 3% of the compensation of the employee into the IRA, or “such other percentage of compensation as is specified in regulations prescribed by the Secretary [of Labor] which is not less than 2% or more than 6%.” In the case of qualifying employees under an automatic IRA arrangement for two or more consecutive years, the Secretary may by regulation also provide for automatic deferral increases no more than annually.
Participant in an Auto-IRA would be defaulted into a target-date fund unless they choose a principal preservation investment option, a guaranteed lifetime income option or equivalent, or any other class of assets or funds determined by the Secretary to be a qualified investment for purposes of the Auto-IRA.
The bill has been referred to the Committee on Finance.Legislators have been introducing automatic IRA bills for years. A 2017 survey by the Pew Charitable Trusts found employers without retirement plans were either somewhat or strongly supportive of the concept of Auto-IRAs.