The Automatic IRA Act of 2024 would generally apply to plan years beginning after 2026, requiring that employers with over 10 workers either set up a 401(k)-type plan or facilitate auto IRAs. 401(k)-type plans must automatically enroll employees at a default contribution rate of 6%, automatically increasing by 1% annually until reaching 10%. The contribution rate could also start at a higher percentage — a maximum of 10% — and reach up to 15% the year thereafter, according to a summary of the bill from the Ways and Means Committee Democrats. Employees could choose not to contribute, and the Treasury Department would be directed to create rules pertaining to the implementation of automatic escalation.
The other option would be for employers to select a provider of an auto IRA arrangement, and contribute a default percentage of each worker's paycheck to their IRA account, the bill summary said. Employers could also choose to have each employee select the auto IRA of their choosing. The default contribution rates for auto IRAs would be set at 6% in the first year, 7% in the second year, 8% in the third, 9% in the fourth and 10% for every year thereafter. Employees could choose between a traditional IRA or Roth IRA, with the default choice a Roth IRA, or employees could choose to opt out altogether.
In the case of auto IRAs, the legislation directs the Treasury secretary to issue guidance that allows for individuals outside of traditional employment to have access to such plans. This would include freelance workers, independent contractors, gig workers and those who are self-employed, among others, according to the bill summary.
The legislation would also create a new tax credit for small businesses — those with under 100 employees — that facilitate auto IRAs, allowing $500 per year for three years, applying to tax years starting after 2024.
The bill "would build on, expand upon, and protect the growing state-facilitated automatic IRA retirement saving programs," the bill summary said. Nineteen states have enacted state-run retirement savings programs, 15 of which are auto-IRA programs, as of Jan. 1, according to Georgetown University's Center for Retirement Initiatives.
Employers that already have a retirement plan or already participate in a state auto IRA program would not be subject to the new law, and neither would employers established for less than two years or those involved in government or church plans.
Another feature of the bill would require that 401(k)-type plans with over 100 participants provide participants the option to receive at least 50% of their vested account balance in the form of lifetime income, if the participant's account balance is over $200,000.