Baucus Bill Would Enable IRA Payroll Deduct Programs

March 17, 2006 ( - Americans without access to a workplace retirement savings plan would be able to contribute to an IRA via payroll deduction under a new plan introduced on Capital Hill Thursday.

The new IRA provision is contained in  The Savings Competitiveness Act of 2006 , a bill sponsored by US Senator Max Baucus (D-Montana), ranking minority leader on the Senate Finance Committee, which is playing a key role in ongoing negotiations with House members over proposed sweeping pension reform (See  Enzi Gets Nod as Chair of Congressional Pension Reform Conference Committee ).   

To help smaller firms pay for new retirement programs, the Baucus bill establishes the Small Employer Payroll Savings Credit of $25 per contributing worker up to $250 and extends the credit for two more tax years if an employer establishes automatic enrollment. Small employers are also given a three-year tax credit for contributions to a new qualified defined benefit or defined contribution plan – 50% of the company contribution up to 3% of compensation.

The Baucus measures designates as a default a “secure retirement account” – an IRA with investment options similar to the Federal Thrift Savings Program which also meets cost standards.

“You can draw a straight line from increased personal savings to a stronger economic future for our country. Americans who save are Americans who can invest, and their money funds American innovation and growth,”  said Baucus in a statement . “Helping hardworking Americans save improves individual and national standards of living. More fiscal responsibility in government is essential to maintaining economic leadership in the world.”

Also included in the Baucus bill are provisions that would:

  • make the Saver’s Tax Credit refundable, with a match equal to 50% of the first $2,000 a worker contributes to an IRA or retirement plan for a maximum $1,000 match. The match is limited to those with an adjusted gross income of below $50,000 for married couples and must be deposited in a Roth IRA or 401(k).   
  • help employers institute automatic enrollment programs – a provision that is likewise included in the bills before the Enzi conference committee.
  • allow parents, for the first time, to direct contributions to Roth IRA accounts for their children, not just for themselves.

A summary of the Baucus bill provisions is  here .