Rep. Richard Neal Proposes Near-Universal Federal Auto-IRA Program

Representative Richard Neal, D-Massachusetts, the ranking member of the U.S. House Committee on Ways and Means, on Wednesday proposed the Automatic IRA Act of 2024, followed quickly with industry support.

The bill would create an automatic individual retirement account program at the federal level that would require employers with more than 10 employees that lack a retirement plan to enroll employees into an IRA, with exemptions for church and government plans. It would also open the door for the use of lifetime income options such as annuities for employees with a balance of $200,000 or more as a way to introduce a pension-like income option in retirement.

Many representatives of the retirement and insurance industry backed the bill on Wednesday, including the Insured Retirement Institute, the American Council of Life Insurers and the Teachers Insurance and Annuity Association of America.

The American Retirement Association also backed the proposal, writing in a statement that it would “dramatically expand retirement coverage of employees, gig workers, and other independent contractors.” The endorsement comes after the ARA was a staunch opponent of another federal IRA bill from October 2023, the Retirement Savings for Americans Act, which never came up for vote.

The RSAA proposed a federally run universal IRA program with a 5% matching contribution paid from general tax revenue. The creators of the bill wrote at the time that it would be a “simple and straightforward step” to cover tens of millions of Americans without access to a plan.

Brian Graff, the CEO of the American Retirement Association, explains that the RSAA would create a “federally run program,” potentially incentivizing businesses to terminate a plan in order to take the government match, which would be “to the detriment of the private sector.”

The Automatic IRA Act, by contrast, has no government match and is essentially a requirement to have a plan in which the minimum requirement is an IRA funded by payroll deduction.

Many states have started their own mandatory or optional retirement programs in recent years that often include auto-IRAs. As of January, 2024, there are 19 states that have state-facilitated retirement programs for private sector workers, with a mix of auto IRAs, multiple employer plans, or a combination, according to Georgetown University’s Center for Retirement Initiatives.

A participant enrolled in an IRA created by the Automatic IRA Act would be defaulted for the first year of the plan at a contribution rate of 6% to 10%, which would automatically escalate by 1% until it reached 10%. Starting in the second year, plans would be able to default participants as high as 15%, but no further. Participants would be able to opt out or elect different contribution levels.

Participants would also be defaulted into a Roth IRA, but unlike some state IRA programs, they would be able to elect a traditional IRA instead. A $500 tax credit would be granted for the first three years to an employer that participates in the program.

The bill only permits three investment types in the IRA “and no other investment options.” The default investment would be a target-date fund. There would also be a “principal preservation” fund and a “balanced option.”

The Department of Labor defines balanced funds as those “diversified so as to minimize the risk of large losses and that is designed to provide long-term appreciation and capital preservation through a mix of equity and fixed income exposures consistent with a target level of risk appropriate for participants of the plan as a whole.”

Other types of funds, such as domestic or foreign equity funds, would not be permissible.

The bill also addresses lifetime income options. For employers with at least 100 employees participating in the federal IRA program, they must permit employees with a balance of at least $200,000 to invest at least 50% of their balance into a lifetime income option.

The Insured Retirement Institute, which represents the insured retirement strategies industry, backed the strategy as a way to get workers into a guaranteed income option and “address the anxiety many workers feel about outliving their retirement savings,” according to a statement.