Government Takeover of Retirement Assets

Bingaman Introduces Automatic IRA Bill to "Spur Retirement Savings"

August 9, 2010

The Hill - Shortly before leaving town for the August break, Sen. Jeff Bingaman (D-N.M.) introduced legislation enabling workers to automatically invest in IRA plans.

The Automatic IRA Act of 2010, allows employees at companies that do not sponsor a retirement plan to be automatically enrolled in IRAs at their workplace.

If workers choose to participate, they will be eligible to invest in an IRA through payroll deductions, much like employees do with 401(k) accounts. To qualify, employees must be with the company for at least three months and be at least 18 years old. Workers not wishing to participate can opt out.

Employers will receive a $250 tax credit for each of the first two years of automatic IRA operation. Companies that fail to offer an automatic IRA for their workers will be subject to an excise tax of $100 for each employee who should have been covered.

Firms that must comply with the legislation will be phased-in and based on size.

In the first year after enactment, the requirement will only apply to firms with 100 or more employees; in the second year, firms with at least 50 workers must comply; in the third, companies with 25 or more workers must offer IRAs; and in the fourth, employers with 10 or more workers must comply.

Bingaman contends his bill will enable more workers to save for retirement.

"Last year, only half of all American workers had access to any type of retirement plan or account at work," he said in prepared remarks. "As a result, millions of Americans enter their retirement years with inadequate savings. Our bill will open the door to a secure retirement for nearly 42 million workers."

Sen. John Kerry (D-Mass.) is a co-sponsor of the bill, and the Obama administration has called on Congress to enact an automatic IRA measure.

The idea of allowing workers to automatically invest in an IRA is also supported by groups such as AARP, Consumers Union, the Minority Business Roundtable and the U.S. Women's Chamber of Commerce.

Bingaman and Kerry are members of the Senate Finance Committee, which has jurisdiction over tax policy and would be tasked with moving forward on the senators' bill.

Senator Introduces Automatic-IRA Bill

August 13, 2010

stltoday.com - Some behavioral ecoomists have been promoting something called the automatic IRA as a partial solution to America's retirement problem. The idea was endorsed early on by President Barack Obama, and now it has made its way into a formal legislative proposal.

Sen. Jeff Bingaman, D-N.M., introduced something called the Automatic IRA Act of 2010 last week. Rep. Richard Neal, D-Mass., added a similar House bill this week. If passed, the legislation would require every employer with more than 10 employees to offer payroll-deduction access to an Individual Retirement Account. The employer wouldn't be required to contribute anything to the account, and backers say it wouldn't have the red-tape hurdles of a 401k plan.

Also, the bill sets a default investment level of 3 percent of an employee's pay, unless the employee opts out. That's the behavioral-economics feature: Research shows that, because of inertia, a lot of workers will stay in the plan and accumulate retirement savings that they wouldn't otherwise have.

Backers note that half of Americans don't have access to any retirement plan at work. According to Investment News, Bingaman claims his bill could increase retirement savings by as much as $15 billion a year.

The bill's biggest hurdle is likely to be opposition from business groups, who won't take kindly to any new federal mandate.

I wrote about this issue in 2006, when some think-tank economists came up with the Auto-IRA idea. My column raised some questions about how well the Auto-IRA would work:

An opt-out structure would overcome the inertia that's a part of human nature, but other barriers can't be overcome so easily. Mostly, people don't save because they don't have the money.

"A very substantial portion of those workers without a retirement plan at work are low-income people, " said Dallas Salisbury, president of the Employee Benefit Research Institute.

In one survey done by the institute, 50 percent of the people said they would stay in a retirement plan if they were put into it by default. But the percentage fell rapidly with income.

... The Automatic IRA proposal "would create an incremental increase in retirement savings, but because of income levels and other needs, it's not likely to lead to a massive increase, " Salisbury said.