Employees wouldn’t receive an employer match, though the contributions would qualify them for the saver’s credit under existing tax law. A married couple with an adjusted gross income of up to $36,000 a year is eligible for a tax credit equal to 50 percent of contributions to retirement accounts.
The credit diminishes as income increases and is unavailable to individuals with adjusted gross incomes of more than $30,000 a year and married couples with incomes exceeding $60,000. The saver’s credit is paid through tax refunds, not a contribution into the account.
Also, employers would have to agree to allow payroll deductions. Unlike with 401(k) plans, they wouldn’t have to contract with a financial services company, follow nondiscrimination rules or have a fiduciary responsibility.
Few Offered
Companies can already offer such programs with a range of investments and relatively few do, said Derek Dorn, a partner at Davis & Harman LLP in Washington.
“It can’t hurt,” said Dorn, an aide to former Senator Jeff Bingaman, a New Mexico Democrat who backed a requirement for automatic enrollment. “Perhaps this will be an opportunity for some. And perhaps the greatest benefit will be the visibility that the program gives to payroll deduction IRAs.”
Treasury Secretary Jacob J. Lew said the program would begin operating by the end of the year. The government will start looking for a financial agent with experience in administering IRAs. The Treasury Department, not the individuals, would pay fees to the agent.
The accounts would be open to people with annual household income up to $191,000 whose employers choose to participate.
$15,000 Maximum
The plans would have a maximum balance of $15,000, after which money would have to be rolled over into a private-sector Roth IRA with a range of investment options. The plans would be portable so workers could keep them if they change jobs.