House introduces new federal auto-IRA bill for employers without a 401(k) plan
The legislation would require firms with 10+ employees to automatically enroll all full-time and long-term part-time employees in an automatic IRA or 401(k) plan, allowing workers to decline to participate at any time after enrollment.
The federal government may follow the lead of nearly 20 states that have mandated programs to help workers save for retirement.
Rep. Richard Neal, D-Mass., ranking member of the House Ways and Means Committee, has re-introduced the Automatic IRA Act of 2024. It would require employees to automatically be enrolled in an IRA or other automatic contribution plan or arrangement, such as a 401(k). The legislation would create a new tax credit of $500 per year for three years for employers of up to 100 employees that offer either a state or national automatic IRA, in addition to other existing tax credits.
“Automatic IRAs are simple, effective and proven tools to help more workers save for secure retirements,” Neal said. “Across the country, many state automatic IRAs are demonstrating that automatic IRAs not only work in increasing savings rates but also help close racial, gender and income savings gaps, and it’s past time for the federal government to expand this success to all Americans.”
The bill’s summary pointed to the success of state auto-IRA plans as a guide, adding that the proposed nationwide auto-IRA concept is something that works with — rather than competing with — private sector 401(k)s and similar employer-sponsored plans.
“The American Retirement Association strongly supports the Automatic IRA Act that will significantly increase access to workplace retirement savings programs,” CEO Brian Graff said. “Importantly, it achieves this by leveraging the existing public-private partnership that drives the successful 401(k) system providing benefits to over 100 million Americans.”
An employer who already maintains a qualified retirement plan before enactment of the bill is exempt from the requirement, as are employers with 10 or fewer employees, those in business for less than two years or those with governmental or church plans. it will not affect workers currently enrolled in a state-sponsored plan.
The legislation would apply to plan years beginning after 2026. Contributions would default at a minimum of 6%, which could be higher but only up to 10% in the first year and 15% thereafter. It would auto-escalate at 1% per year up to 10% in the following four years. The auto-IRA must offer employees a target date fund as the default investment, as well as a principal preservation fund and a balanced fund. It also requires 401(k)-type plans with more than 100 participants to offer a lifetime income option.
Related: State-run auto-IRA & 401(k) programs: Changing the retirement plan landscape
The total number of state programs now stands at 19 with assets nearing $1 billion, according to the Georgetown University Center for Retirement Initiatives.