Two Democratic lawmakers are proposing legislation they say is aimed at walking the country back from the “precipice of an impending retirement crisis.”
Senator Sheldon Whitehouse, D-Rhode Island, and Rep. Richard Neal, D-Massachusetts, introduced their Automatic IRA Act last week, which would automatically deposit payroll contributions into IRAs for workers without access to retirement plans. It also would mandate employers with 10 or more workers to participate, assuming workers don’t opt out.
The proposed legislation, they said, would extend a savings vehicle to “tens of millions” of workers without one. The Brookings Institute’s Retirement Security Project estimates the Whitehouse-Neal legislation could raise national retirement savings by $8 billion annually, the release said.
“Getting more low and middle-income workers into the retirement savings system remains one of my top priorities,” said Neal, a senior member of the House Ways and Means Committee.
President Obama is expected to soon formally issue a similar proposal.
Additionally, under the president’s proposal, any employer with 100 or fewer employees who offers an auto-IRA would get a $3,000 tax credit. The president also will propose to triple the existing “start-up” credit, so small employers who offer a new retirement plan would receive a $4,500 tax credit to help them offset administrative expenses. Small employers who already offer a plan and add auto-enrollment would get an additional $1,500 tax credit.
Bipartisan legislation introduced at the end of the last legislative session would increase deferral rates allowed in Simple and existing safe harbor 401(k) plans, and extend tax credits on the matches small employers make to retirement plans.
The Small Businesses Add Value for Employees Act was co-sponsored by Wisconsin Democrat Ron Kind and Washington state Republican Dave Reichert.
Their law sweetens the incentives for small businesses introduced in Utah Republican Senator Orrin Hatch’s SAFE Act.
Under the Kind-Reichert Save Act, deferral caps in Simple 401(k) plans would be increased to $10,000 annually. That’s an even more aggressive proposal than what’s in Hatch’s SAFE Act, which raises annual deferral caps to $8,000.
Both the Save and SAFE acts incentivize sponsorship with increased tax credits that claim to offset plan administration costs, and both seek to increase automatic deferral minimums and automatic increase caps.
The Whitehouse-Neal Automatic IRA Act has designed with input from both Brookings retirement scholars and those at the Heritage Foundation, a conservative think-tank.
Employers mandated to participate could receive tax credits to defray the costs of setting up the accounts.