Mandatory Workplace IRA Bill Returns

A pair of US Senators have introduced legislation they claim will “dramatically increase retirement savings.” 

This week U.S. Senator Jeff Bingaman introduced the Automatic IRA Act of 2011, which will, according to a press release, “give nearly 42 million Americans an easy, effective way to take responsibility for their fiscal futures and plan for a secure retirement”.

According to the announcement, the Automatic IRA Act of 2011 (S. 1557), which also has Senator John Kerry (D-Massachusetts) enables nearly all employees who work for a private business with more than 10 workers and whose employer does not already offer a retirement plan to contribute to retirement savings through payroll deductions.  Worker contributions would be deposited into their own Individual Retirement Account (IRA) “ultimately managed by the same banks, mutual funds, insurance carriers, and other institutions that currently provide IRAs”.  A little more than a year ago, Bingaman introduced a comparable bill, The Automatic IRA Act of 2010 (Auto-IRA Bill Introduced With Employer Mandates)     

In the first year after enactment, the provision will apply only to firms with 100 or more employees (counting employees who earned more than $5,000 in the prior year); in the second year, 50 or more; in the third, 25 or more; and in the fourth, 10 or more. (Any employer of any size can opt in at any time.) According to a summary of the bill, this phase-in will enable retirement service providers to prepare for a significant expansion in the number of IRA accounts (through product innovation and marketing) and regulators to address enforcement and other regulatory issues. 

The bill sets the default at 3% (or such other percentage prescribed in regulations), though employees can raise or lower their contribution percentage, or can opt-out entirely from the program.  

An employer that already maintains a qualified retirement plan is generally not required to offer an automatic IRA under the bill, though if that employer generally does not cover employees in a division, subsidiary or other major business unit, the employer would have to provide an automatic IRA to those employees.  The provision will not apply to employers that have not been in existence for two full years, nor will it apply to governmental or church employers.

Employees who have been employed for at least 3 months and those who have attained age 18 as of the beginning of the year are automatically enrolled in an Automatic IRA, but can affirmatively opt out.

To offset administrative costs, employers will receive a $250 tax credit for each of the first two years of Auto IRA operation.  An employer that fails to offer an automatic IRA for its employees is subject to an excise tax of $100 for each employee who was supposed to be covered (employers who make an innocent error will have the opportunity to self-correct).  .

"Too few American workers are adequately preparing for their retirement years.  Our bill addresses that serious problem by ensuring that workers have a way to directly deposit some of their paychecks into a retirement accounts," Bingaman said.

"This is a common sense reform to make it easier for American workers to save for retirement without adding to the cost for their employers. In Massachusetts alone, over 800,000 workers would benefit from a greater chance to carve a path to a secure retirement," Kerry said.  

The Obama administration has called on Congress to enact an automatic IRA measure, and included a proposal in its FY 2011 budget.

Bingaman and Kerry are members of the Senate Finance Committee, where this bill has been referred.

A summary of the new bill is available at