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Policy Alert: Support Automatic IRA Legislation
By Inemesit Imoh on 02/17/2012 @ 02:00 PM
Automatic IRA legislation will improve financial security for millions of workers who are facing retirement with little savings.
Inadequate savings for retirement present a serious threat to the future of American prosperity. Even before the recession, half of all households headed by someone aged 55-59 had less than $13,000 in retirement savings. This anemic level of savings threatens to leave retirees struggling with financial insecurity throughout their elder years. Social Security benefits, of course, fill part of the gap, but in 2011, the average benefit paid to retired workers was a meager $1,177 a month (just over $14,000 per year). Despite a difficult legislative environment, the case for addressing retirement security is gaining steam.
Congressman Richard Neal of Massachusetts, following the lead of New Mexico’s Jeff Bingaman in the Senate (S. 1557) and the Obama Administration’s proposal in the FY 2013 Budget Request, has introduced legislation to address this problem: the Automatic IRA Act (H.R. 4049) will make employer-sponsored retirement savings accounts available to many of the 78 million employees who currently do not have access.
Today, households rely heavily on personal assets, pensions and 401(k) accounts to help them make ends meet, even before both spouses retire. However, according to the 2012 Assets & Opportunity Scorecard, only 44.9% of Americans participate in their employer-sponsored retirement plan and almost 50% of the American workforce currently does not have access to a work-based plan at all.
Why is that so critical? Because employer-sponsored retirement plans are one of the main ways Americans are able to save for retirement. However, many small businesses and lower wage industries do not offer retirement plans to their employees. For those that do have the option to enroll, many are discouraged from ever doing so due to complex rules and investment options.
To make financial security for older Americans a reality, policymakers need to make sure that families have the tools they need to save for their later years today. Congressman Neal (D-MA) recognizes this fact and has reintroduced the Automatic IRA Act (H.R. 4049), which he says “provide common-sense reforms that will help Americans prepare for a financially secure retirement.”
The bill would enable nearly all employees who work for a private business with more than 10 workers to contribute to retirement savings through payroll deductions into an IRA. In addition, the bill provides employers with a tax credit to cover the administrative costs of setting up the IRA. Automatic IRA is a low-cost and effective way to reach millions of Americans struggling to build a nest egg for themselves.
This legislation is one of the few proposals that could break the gridlock in Congress. Despite the strong partisan differences between the parties, proposals for Automatic IRA have had bipartisan support in the past. Nods from the AARP, Brookings Institute, Aspen Institute for Financial Security and Heritage Foundation all support Automatic IRA policies similar to what is included in H.R. 4049.
CFED will track this bill and similar legislation as it moves through Congress. Despite the challenging political environment and the upcoming elections, we hope that this sensible and employer-friendly legislation will find broad support among lawmakers.
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