Customer ID Program Poses Challenges for State Auto-IRAs

More than 2 million Americans have been blocked from enrolling in auto-IRA programs due to failing identity verification, according to the Bipartisan Policy Center.

While state auto-IRA programs have helped to provide access to retirement savings for workers whose employers do not offer a plan, a recent paper published by the Bipartisan Policy Center revealed that federal Customer Identification Program rules are preventing more than two million Americans from enrolling in automatic individual retirement accounts.

With three new state auto-IRA programs launched this year and an additional seven in the process of being implemented for future years, the authors of the paper, Emerson Sprick and Kim Olson, argued that the number of CIP failures—and the workers prevented from accessing the retirement savings tool—will only continue to increase.

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The CIP, created in 2001 by the Patriot Act, was designed to prevent money-laundering and the financing of terrorism. The CIP Rule was issued by the Department of the Treasury and multiple agencies to banks, savings associations, credit unions and certain non-federally-regulated banks in 2003. CIPs confirm that a potential account holder exists and is the person they claim to be.

Recognizing that the CIP process can be burdensome for financial institutions, regulators exempt a variety of customers and accounts that present a low risk of illicit activities, which included federally qualified retirement plans like 401(k)s.

However, auto-IRAs are not exempt from CIP rules. Because the first state auto-IRA program launched in 2017, well after the CIP rules were finalized, these programs are subject to the rules, even though their design does not lend itself to illicit activity.

As a result, program administrators for state auto-IRAs must run a CIP check on employees, and those who pass are automatically enrolled for payroll deduction contributions into their own IRA.

Auto-IRA Holders Susceptible to CIP Failures

According to the Bipartisan Policy Center, program data show that 29% to 46% of potential state program participants fail the CIP check and are not automatically enrolled. Among the seven state programs launched prior to 2024, more than 2 million combined people have failed a CIP check.

Approximately one-third of CIP failures are due to the inability to verify a address. According to the paper, four pieces of data are required for a participant to pass the CIP test: name, address, date of birth and either Social Security number or Individual Taxpayer Identification Number.

Sprick, an economist and associate director of economic policy at the Bipartisan Policy Center, says a possible explanation for this failure is that employees have changed addresses and are not updating their employers with this information.

“Federal law requires employers to stay up to date on their employees’ addresses, and it may be that employees are supposed to notify their employer every time they change addresses,” Sprick says. “But … that doesn’t always happen.”

Once the program administrator for the state auto-IRA program receives information from the employer about a worker, the administrator must run the information through an automated CIP verification system. If the employee fails the automated check, the administrator begins a manual search for additional information to verify the person’s identity. If the manual check is unsuccessful, the individual’s account is not opened.

Sprick says a program administrator would then attempt to contact the individual by mail or email for corrected information, but response rates have been “drastically declining” over the last few years.

“These are folks who have not made an active choice to opt into this program. … [They] haven’t actively signed up for this account,” Sprick says. “They’re not directly inputting their information, which is leading to a lot of the errors, and they’re much less likely to be on the lookout for these communications to verify their information.”

Possible Solutions

To address the issue, Sprick argues the easiest solution would be for federal regulators to provide the same exemption to state auto-IRA programs that they do for 401(k) plans. However, Sprick says this is nuanced, because the exemption should not be applied for self-employed people opting into an IRA, since they are directly inputting their information.

Sprick also points out that regulators have a lot on their plates, so addressing this issue may not be high on their priority list. Regulators may also prefer to do a wholesale revision and improvement of the regulations surrounding these laws, but this would take time.

An alternative approach would be to reduce or alter, through either legislation or regulation, the information required to pass the CIP verification. For example, the paper suggested requiring state programs to match only three pieces of information, or match a phone number instead of an address, which could help significantly reduce CIP failures.

Sprick says the issue is particularly important since the Automatic IRA Act of 2024 has been introduced in the House, which would create an auto-IRA program at the federal level and would require employers with more than 10 employees that fail to offer a retirement plan to enroll employees into an IRA—with the exceptions of church and government employers.

“When we think about the fact that, every year, new states are passing these programs and starting to implement these programs, and that there is real momentum on the federal level for the first time to consider something like an automatic IRA program, that number could get very big very quickly because of this seemingly very niche issue,” Sprick says.

Product & Service Launches

Principal launches TDFs with ARS in-plan annuity option; Capital Group, KKR debut public-private fixed-income funds; North American and AMS introduce annuity series; and more.

Principal Announces TDF Suite With ARS’s Lifetime Income Builder

Principal Financial Group Inc. is launching a target-date-fund suite embedded with Advantage Retirement Solutions LLC’s in-plan annuity option for participants to set up guaranteed distributions in retirement, according to an announcement.

ARS’ proprietary Lifetime Income Builder functions like an investment for plan participants while being backed by a group fixed-indexed annuity with a guaranteed lifetime withdrawal benefit.

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Starting next year, Principal will offer target-date series that include both active and passive investment options for plan sponsors using its recordkeeping services.

The recordkeeper and asset manager will also encourage plan sponsors to use the TDF as the qualified default investment alternative or the default investment option to “help remove difficult participant-level decisions that often lead to confusion or inertia,” according to the announcement.

Capital Group, KKR File for 2 Public-Private Fixed-Income Funds


Capital Group Companies Inc. and KKR & Co. Inc. registered with the Securities and Exchange Commission two public-private fixed-income funds, Capital Group KKR Core Plus+ and Capital Group KKR Multi-Sector+. The firms expect the funds to launch in the first half of 2025, pending approval.

The filings follow the firms’ announcement that they would be creating a category of hybrid public-private investment funds with the goal of giving investors access to private markets in their portfolios. The funds will be offered via financial professionals in the U.S. wealth market, the firms noted.

“These strategies aim to solve the access gap that individual investors currently face when it comes to private investments, and we expect these two public-private strategies will be the first of many across asset classes and geographies,” Holly Framsted, head of global product strategy and development at Capital Group, said in a statement.

Capital Group is responsible for the overall fund strategies, with KKR leading on the private market offerings. The former manages more than $555 billion in public fixed-income assets, while KKR manages more than $100 billion in private credit.

North American and AMS Financial Services Group Announce Max Elite Annuities

Fixed-index-annuity provider North American Co. for Life and Health Insurance, a member company of Sammons Financial Group Inc., is partnering with AMS Financial Services Group on a new annuity product series.

The companies announced this week the Max Elite Accumulation FIA series and the Max Elite Guaranteed MYGA series, both of which will be wholesaled by AMS and sold through bank and broker/dealer channels. Each series will offer five-, seven- and 10-year surrender charge options.

“Right now, the U.S. annuities marketplace has broad client attraction as consumers see the value of guaranteed income,” Rob TeKolste, president of Sammons Independent Annuity Group, said in a statement. “We intend to lead the market by delivering a product that may help clients grow their nest egg.”

Candidly Unveils Onward, a Debt Optimization Solution for the Workplace

Candidly, an artificial intelligence-backed student debt and savings optimization platform, has launched a new consumer debt management program for retirement plan advisers, plan sponsors and recordkeepers to offer to participants.

Candidly’s Onward, which has been available as an application programming interface, will in 2025 have a full “front-end experience,” according to the firm. The new platform’s goal is to help consumers best allocate their money across debt, savings and investing to maximize interest-bearing deposits.

Onward can be used as a “plug-and-play” option in existing employer-sponsored benefits, including health care savings accounts, flexible savings accounts, brokerage accounts and retirement accounts.

“Lowering consumer cost of debt, and directing those dollars into first time deposits, savings, and retirement savings, transforms financial outcomes today and tomorrow,” Candidly CEO Laurel Taylor said in a statement.

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