Automatic IRA Act

Source: AARP Advocacy

What’s at Stake?

About half of all workers—75 million people—cannot save for retirement at work because their employers do not offer plans. Very few of these workers open IRAs (individual retirement accounts) on their own. 

A new proposal for "automatic" workplace retirement accounts would boost savings dramatically. Automatic accounts would ensure that workers almost always have the ability to save at work. Preliminary estimates for AARP conclude that nearly 50 million workers would be enrolled in these accounts. 

While providing the accounts would be required of employers that don’t offer other plans, the accounts would be so simple to administer that they would entail little or no cost. Evidence shows that the workers who most need help—particularly lower-income, women, and minority workers—would increase their savings significantly. When matched to the "Saver’s Credit," a tax credit created to encourage low- to moderate-income workers to contribute to their retirement accounts, automatic accounts would have an even greater effect. Click here for more information on the Saver’s Credit.

As policymakers foster our economic recovery, steps to strengthen the long-term underpinnings of our economy—including savings—are urgently needed. Without new policies to help Americans save, millions would be forced to delay retirement or to depend on others to make ends meet.

Legislative Summary
Legislation to establish workplace retirement accounts (often called "Auto IRA" or "Automatic Workplace Pension" legislation) is expected in the 111th Congress. Such a bill would involve little or no cost for employers. Employers that do not currently offer a retirement plan would be required to offer payroll deductions to individual retirement accounts. However, employers would not maintain the accounts, nor would they make contributions.

Workers would be automatically enrolled in the accounts at 3 percent of their wages or salary, and the level of savings would rise annually to a certain maximum. All employees would have the opportunity to opt out of the automatic-savings plans. Accounts would be completely portable. Workers would choose from a range of investment plans offered by financial institutions or use the default plan, which would seek to optimize risk-balance. Businesses with fewer than 10 employees or with less than two years in operation would be exempt.

AARP’s Position
AARP supports the automatic retirement account legislation.  At a congressional hearing in 2008, an AARP board member, Leo Estrada, Ph.D., testified, "The Automatic IRA is an innovative, bipartisan, common-sense idea that can help the millions of workers who do not have an employer-sponsored retirement income vehicle to save for retirement."

Legislative Timeline

President Obama has proposed "automatic workplace pensions" (and a new tax benefit for saving toward retirement) in his budget as a component of his retirement-security plan. House and Senate leaders are considering ways to enhance the legislation that was introduced in the 110th Congress, and they may push to consider this legislation in the first year of the 111th Congress.