Federal Auto-IRA Bill Re-Introduced

Members of both parties and both legislative chambers re-introduced the Retirement Savings for Americans Act on Thursday. The legislation would create an automatic individual retirement account program for low- and middle-income workers, similar to programs already operating in many states.

The 2023 version of the bill is similar to the 2022 version. The contribution limits are the same as regular IRAs, and the contributions are post-tax. The program would be administered by the Department of the Treasury and would feature a 1% automatic match and up to a 4% tax credit match that would be phased out with income.

The program would also automatically enroll participants at 3% of their income, with an option to opt out or increase their contributions. The bill specifies that the program must have a government security fund, a fixed-income fund, a common stock fund, a small-cap stock index fund and an international stock index fund.

The bill is sponsored by Senators Thom Tillis, R-North Carolina, and John Hickenlooper, D-Colorado, in the Senate, and Representatives Lloyd Smucker, R-Pennsylvania, and Terri Sewell, D-Alabama, in the House. The bill received supporting statements from DoorDash and Uber, whose gig workers would stand to benefit from a federal IRA program.

“With more Americans choosing new ways to work than ever before, we’re proud to support this bipartisan effort to enable more workers in the modern economy to access the kinds of benefits that have long been out of reach for all but full-time employees,” Max Rettig, vice president of public policy at DoorDash, said in a statement with the bill.

Private industry asset managers and brokerages have also been seeking ways to get workers without workplace retirement plans to invest in long-term savings vehicles. On Thursday, BlackRock Inc. announced a target-date exchange-traded fund to serve as a long-term, relatively low-cost savings option that will adjust to an investor’s risk tolerance as they get closer to retirement. In late 2022, online brokerage Robinhood announced an IRA with an automatic 1% match up to $6,000.

When the Retirement Savings for America Act was last introduced in December 2022, industry actors candidly described it as a threat to the private retirement industry and retirement advising. Brian Graff, executive director and CEO of the National Association of Plan Advisors, told attendees of a NAPA conference in April that they should donate to the American Retirement Association’s political action committee to help defeat the bill because the resulting federal program would compete with private plans for the remaining market. It could potentially cause some employers to terminate their plans and let employees take advantage of the federal program’s 5% match.

At the same conference, Graff noted that, “what you should be worried about is that there is actually bipartisan support for the idea of a federally run retirement savings plan.”

The ARA is an advocacy group for the private retirement industry.