Rep. Richard Neal, D-Mass., reintroduced Monday the Automatic IRA Act, legislation to require employers with more than 10 employees that do not sponsor a retirement plan to automatically enroll their employees in automatic IRAs "or other automatic contribution plans like 401(k)s," Neal said.
“Automatic IRAs are simple and effective, and they have proven to be a successful tool to unlock secure retirements for more workers,” Neal said. “Across the country, many state automatic IRAs are demonstrating that they work not only in increasing savings rates but also to help close racial, gender, and income savings gaps. It’s past time for us to expand this opportunity to all Americans.”
As of August, one million workers have saved $2 billion in state automatic IRA programs, Neal said, citing research from the Pew Charitable Trusts.
Neal said at FutureWise, an event sponsored by TIAA held in Washington in mid-November, that he planned to reintroduce his auto IRA bill by year-end. He floated the Automatic IRA Act of 2024 last February.
Chris Spence, managing director at TIAA, said at the FutureWise event that Neal's bill "has been the inspiration" for state auto-IRAs being introduced. Rhode Island introduced legislation in June 2024 to create a state-sponsored auto-IRA program, while Washington Gov. Jay Inslee signed a bill in March 2024 to facilitate access to automatic enrollment in IRAs for workers in the state.
Automatic IRAs are payroll deduction IRAs, a fact sheet about the bill states. Under the bill, "employers contribute a default percentage of an employee’s paycheck to the employee’s automatic IRA account. Employees can raise or lower their contribution percentage or can opt-out entirely from the program. Employees can choose to contribute to either a traditional IRA or Roth IRA, but if no affirmative choice is made, the default is a Roth IRA," the fact sheet states.
An employer can select a provider (trustee or issuer) of a certified automatic IRA arrangement to which employees’ elective contributions will be sent. The employer also may choose to allow each individual employee to direct that the contributions be sent to an IRA selected by the employee.
The legislation directs the Treasury secretary to issue guidance "providing for automatic IRAs to be made available to individuals who provide services that do not constitute employment," such as gig workers, self-employed individuals, freelance workers, independent contractors, and other non-employees, the fact sheet says.
The list of options that employers could use to provide benefits includes individual retirement annuities, according to the bill text.
Neal’s Automatic IRA bill "is the game changer our retirement system so badly needs," J. Mark Iwry, former senior advisor to the U.S. Treasury secretary for national retirement policy, who's now a nonresident senior fellow at the Brookings Institution in Washington, told ThinkAdvisor in an email. "Building on the successful Automatic IRA legislation now adopted in 17 states — which provide ample proof of concept — the federal Auto IRA will extend automatic IRAs to the rest of the nation, producing the natonwide breakthrough in retirement coverage we’ve never before achieved."
Added Iwry: "Using private-sector asset managers and recordkeepers, the state auto IRAs are demonstrably enhancing our private retirement system by having the intended effect of encouraging thousands of small businesses to adopt new 401(k) plans. The federal Auto IRA legislation will do the same.”
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