Representative Neal Reintroduces Automatic IRA Act
Representative Richard Neal (D-MA), House Ways and Means Committee Ranking Member, has reintroduced the Automatic IRA Act. According to a summary, the bill would do the following.
- Call for employers with more than 10 employees that do not sponsor a retirement plan to automatically enroll their employees in IRAs (automatic IRAs) or other automatic contribution plans or arrangements, like 401(k) plans. Employers that have been in existence for less than two full years, or employers with respect to governmental plans or church plans would be exempt.
- Require all automatic contribution plans or arrangements (except for automatic IRAs) to
- default at a minimum of 6% (can be higher, but only up to10% the first year and 15% thereafter).
- automatically escalate at 1% per year up to 10%, (i.e., 6% to 7% to 8% to 9% to 10%).
- Set the level for default contributions in automatic IRA arrangements as follows.
- Year 1 – 6%
- Year 2 – 7%
- Year 3 – 8%
- Year 4 – 9%
- All subsequent years – 10%
- Stipulate the following investments in automatic IRAs (1) a target date fund, which must be the default investment, (2) a principal preservation fund, (3) a balanced fund, and (4) any others that might be added by Treasury in the future, but no other investment alternative.
- Require 401(k)-type plans with over 100 participants to permit participants to elect to receive at least 50 percent of their vested account balance in the form of lifetime income. This requirement does not apply for participants with balances of up to $200,000.
- Create a new tax credit ($500 per year for 3 years) for employers of up to 100 employees that facilitate automatic IRAs (whether under this federal legislation or state law).
Representative Neal first introduced the Automatic IRA Act in the 109th Congress (2005-2006). If enacted, the legislation would apply to plan years beginning after 2027. The new credit for small employer automatic IRAs would apply to tax years beginning after 2025.
