A bill reintroduced in the House of Representatives today would require businesses with 10 or more employees to begin auto-enrolling employees in payroll-deduction individual retirement savings accounts such as workplace retirement IRAs or 401(k)s, expanding retirement savings opportunities for millions of workers.
The bill was put forward by Democrat Richard Neal of Massachusetts, who introduced similar legislation in 2022. Known as the “Automatic IRA Act of 2024,” it would also for the first time create new federal IRAs; businesses with 10 employees or more would either need to set up a 401(k) type plan under the act or facilitate access to one of the federal IRAs for all full-time and long-term part-time employees.
In addition, the bill would allow both the new IRAs and 401(k) plans to use an annuities option—a giant deal for the investment management and annuities industries. The federal IRAs would mirror the plans created by the 19 states currently offering state-facilitated IRAs for employees who don’t have access to workplace plans.
While there are a number of retirement bills introduced annually, Neal, as a ranking member of the House Ways & Means Committee, has been a powerhouse in the retirement savings arena, authoring one of the bills that served as the foundation of the SECURE 2.0 Act, the retirement security package Congress enacted in 2022.
The new bill would require employers to automatically begin enrolling workers in 2025 at a default contribution rate of at least 1% annually, until they reach 10%. Employers could also set the initial contribution rate as high as 10%, which could then be increased to a maximum of 15% in the second year.
The bill gives workers the right to decline participation or to opt out at any time after enrollment, but it would require them to be automatically enrolled as soon as they’re eligible.
The legislation tasks the Treasury Department with the creation of rules governing how the auto-escalation of contributions would work, as well as rules to determine when and how employers would be required to offer automatic IRAs to independent contractors, gig workers and the self-employed.
To ease the burden on small businesses, the bill would create a new $500 tax credit for those companies with fewer than 100 employees who offer auto-IRAs. Qualifying employers would get the $500 credit for three years for plans created beginning in 2025.
Thasunda Brown Duckett, the president and CEO of TIAA, which manages $1.3 trillion in retirement plan assets for the not-for-profit market, said in a letter to Neal that a “federal program would help ensure workers’ pathway to retirement security no longer depends on their employer or state.”
The legislation would provide savers with critical access to lifetime income options designed to provide a paycheck throughout retirement. The certainty of a “paycheck for life” would help reduce the risk retirees will outlive their savings in retirement,” Brown Duckett added.
The Insured Retirement Institute (IRI), a trade group representing the annuities industry, is also supporting the legislation. The institute’s president and CEO, Wayne Chopus, said in a statement that the bill would “help America’s workers, retirees and their families build economic equity, strengthen financial security, and protect income in a sustainable manner to last throughout their retirement years.”
The American Retirement Association said in a past letter that such a mandate would create $7 trillion in additional retirement savings and 62 million new retirement savers over 10 years.