Obama administration-backed legislation that would require employers without another retirement plan to set up automatic IRAs is being introduced in Congress despite persistent opposition from employer groups.
The bill was expected to be unveiled by Sen. Jeff Bingaman, D-N.M., early this month, then introduced in the House in September by Rep. Richard Neal, D-Mass. It has been championed by President Barack Obama since his 2008 election campaign as a way to ensure that the roughly half of the nation's workers not now covered by a workplace retirement program have some retirement savings.
Some experts predict the auto-individual retirement accounts could generate an investment pool of $100 billion over five years.
The program would require employers that don't offer any retirement program to employees to set up an automatic payroll deduction system for the IRA, but would not require employer contributions.
Employer groups have been cool to the proposal because they believe offering a retirement plan should continue to be a voluntary decision by the employer.
“We've consistently opposed injecting a mandate into the employer-provided retirement system,” said Ed Ferrigno, vice president of Washington affairs, Profit Sharing/401(k) Council of America, Chicago.
“This smells like a government mandate, and that's something we have concerns about,” added Kathryn Ricard, senior vice president, retirement policy, ERISA Industry Council, Washington.
Supporters said the mandate is needed because employers demonstrated their unwillingness to embrace a voluntary payroll deduction IRA program promoted during the Clinton administration.
In addition, some argue a mandatory plan could be cheaper for employers than bailing out workers through higher taxes after they retire. “It's either a case where you have a private-sector retirement savings plan — and the auto IRA does not require employers to contribute — or there will be a government program financed in part by business taxes,” said David John, a senior research fellow for the Heritage Foundation, Washington, and one of the original architects of the auto IRA proposal.
“It's just that one way or the other, workers have got to be able to provide for their retirement,” Mr. John added.
Although the clock is running down on Congress' opportunity to act this year, legislation could be included as an amendment to any major must-pass bill, Mr. John said.
One issue surrounding the proposed IRA is what default should be set up for employees who don't choose their own IRA investment option. The aide to Mr. Neal said the lawmaker was considering the creation of a new retirement bond similar to the savings bond program that would be managed by the U.S. Treasury.
Mr. Obama's 2011 budget proposed to make the default an after-tax Roth IRA contribution, with employees having the option of switching to a traditional tax-deferred IRA (Pensions & Investments, Feb. 8).
The Roth option was intended to ease the concerns of some lawmakers that the automatic IRA program would contribute to the nation's soaring budget deficit because the contributions are paid with after-tax dollars.
Nonetheless, some employer group representatives are expressing concern that the proposal could end up subjecting employers to Labor Department ERISA regulation despite the best efforts of the lawmakers to exempt auto-IRA employers.
“There's some debate about whether there would be fiduciary liability, despite legislative language to the contrary,” said Aliya Wong, executive director of retirement policy, U.S. Chamber of Commerce, Washington.
Said the Heritage Foundation's Mr. John: “It's one thing to say what you don't like, but the industry needs to come up with a better way of serving these people.”
