The Auto-IRA—a default, payroll-deduction IRA savings program—has been the centerpiece of President Obama’s retirement policy agenda since before he was elected. And it has been consistently opposed by Republicans, because it would “mandate” that employers who do not maintain a “workplace retirement savings plan” maintain an Auto-IRA.
Ever since the Affordable Care Act was jammed through Congress without a single Republican vote, Republicans have hated any legislation that can be characterized as a mandate. And with Republicans about to control both Congress and the White House, some believe the Auto-IRA project is a goner.
I don’t think so. Here’s why.
First, the Blue States are doing it for themselves. California, Illinois and Oregon are getting close to implementing Auto-IRA programs—Oregon’s is due to go effective July 1, 2017. Two more states—Connecticut and Maryland—passed auto-IRA legislation in May 2016. And New York City has recently floated a proposal.
It’s possible that a Trump Department of Labor could, e.g., repeal the recently finalized regulation that, in effect, exempts these state-mandated Auto-IRA programs from the Employee Retirement Income Security Act (ERISA). But that would be kind of extraordinary and extraordinarily messy. And it would actually go in the opposite direction of most Republican instincts—which are to restrict rather than to expand ERISA coverage of IRA programs.
Second, seeing this movement in the states, employers are beginning to get concerned that they are now going to be subject to Auto-IRA programs in multiple states, all with different, and in some cases conflicting, rules. To these employers, a single federal Auto-IRA is starting to look pretty good.
Third—and this is the argument I find most persuasive—the Auto-IRA is the best solution to the problem of getting employees of smaller employers to start saving for retirement. It’s way more effective, more efficient and more respective of human freedom than our current Rube Goldberg system of complicated tax incentives, matching contributions and nondiscrimination testing. NEXT: The argument for defaults