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Auto-IRAs Automate Savings

New rules make it easier to invest for the future.

Auto-enrollment nudges workers to save more. Up to 74 percent of workers sign up for retirement plans under default enrollment, studies have shown, versus only a small percentage for plans without the structure.

Some in Congress favor a “saver’s credit” that would match contributions for low- and middle-income families up to $500. In keeping with the autopilot feature, that credit would be automatically deposited into a retirement plan.

The future of auto-IRA

If the auto-IRA catches on, it will make a huge difference for those working at companies that don’t offer a retirement plan. But there are flies in the ointment.

The U.S. Chamber of Commerce, a powerful lobbying force, opposes the concept because it creates a new government mandate on private companies. “We’re all for increasing [retirement plan] coverage,” Randy Johnson, a chamber vice president, said in a speech this spring. “But these are new requirements imposed on employers, and we oppose them.” The chamber also says that any retirement system for private-sector workers should let them invest in open markets, not just funds chosen by a government board.

Many business owners also fear that the plans will be too expensive to set up and maintain, or will force them to radically adjust their payroll systems.

To ease those fears, small employers will be given tax credits to offset set-up expenses. Businesses less than two years old and those with 10 or fewer employees would not be required to offer the program.

The program will cover only 40 million to 50 million of the 78 million workers who don’t currently have access to retirement plans at work, estimates Reimer. Those who will be covered will require education to take full advantage of the new accounts.

Ideally, if the program gains acceptance, it’s possible that those reentering the workforce or workers who simply haven’t saved enough for retirement will have another opportunity to rebuild their nest eggs. After devastating losses in the stock and housing markets, that’s the most welcoming news that this legislation would bring.

John Wasik is a columnist for Bloomberg News and the author of "The Audacity of Help: Obama’s Economic Plan and the Remaking of America."

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