Specifically, employers with more than 10 employees that do not offer qualified retirement or pension plans would be required to allow all eligible workers the option to put a portion of their wages into an automatic IRA account through payroll deductions under the Automatic IRA Act of 2007 (H.R. 2167).
Co-sponsored by Congressmen Phil English (R-Pennsylvania) and Richard Neal (D-Massachusetts), the legislation is designed to make it easier for workers to save for retirement by requiring employers to establish an automatic payroll deduction to an IRA, according to a press release.
Under the bill, employers would be able to choose the type of IRA option for their employees. They could:
- establish accounts for all employees at one institution;
- allow the employee to establish their own account; or
- opt to use the safety-net option: a private-sector provided contracted by the federal government’s Thrift Savings Plan (TSP II) Board (if the employer does not want use a regular, private provider IRA)
Tax Credit Offsets
To offset the administrative costs associated with establishing the payroll deduction, small businesses with less than 100 employees would receive a tax credit of up to $250 for the first two years of the program. However, any employer that fails to comply with the new regulations would be subject to an excise tax of $100 per eligible employee.
The Automatic IRA Act would not require employers to offer the retirement plan to union-represented employees, nonresident aliens, employees under the age or 18 or workers that have been on payroll for less than three months. All eligible workers would have the option to opt-out of the savings program.
A companion bill (also named Automatic IRA Act of 2007 ) was introduced last month in the Senate by Senators Jeff Bingaman (D-New Mexico) and Gordon Smith (R-Oregon).