Mandatory Workplace IRA Bill Returns

September 16, 2011 (PLANSPONSOR.com) – 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.