Document: Automatic IRA Legislation Introduced in House and Senate: ERIC

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Automatic IRA Legislation Introduced in House and Senate

House Ways and Means Committee Member Richard Neal (D-MA) on August 10 introduced H.R. 6099, the "Automatic IRA Act of 2010," which is similar, but not identical, to legislation introduced August 5 in the Senate by Senators Jeff Bingaman (D-NM) and John Kerry (D-MA).

In general, both the House and Senate versions of the Automatic IRA Act would require -- after full phase-in -- employers with 10 or more employees that do not offer a retirement plan to automatically enroll employees in IRAs, whereby employees could make payroll deduction contributions.

Note that both the Senate and House versions of the bill exempt auto IRAs from ERISA when employers use providers listed on a Treasury website, an IRA selected by the employee or an R-Bond (retirement bond).

Key differences between the House and Senate versions of the Automatic IRA Act of 2010 include:

Effective date of Auto IRA mandate to small employers: The Senate bill would impose auto IRA mandate in 2012 to firms with 100 or more employees (gradually reaching employers with 10 or more workers in 2015); the House would apply the auto IRA mandate to all firms with 10 or more employees in 2012.

Default IRA: The Senate bill uses the Roth IRA as the default IRA and the House bill would set the traditional IRA as a default IRA.

Failure to make affirmative provider selections: When employers fail to make affirmative selections of auto IRA providers and do not authorize employees to select their own IRA providers, the House bill would make the Treasury retirement bonds the default investment and the Senate bill would match the employer with a randomly selected provider from the authorized list.

Treatment of business units without access to qualified plans: The Senate bill would enroll "employees of a subsidiary, division, or other major business unit" that are not generally eligible to participate in the qualified plan in an auto IRA (the definition of "generally" is unclear). The House bill would require such employees to be enrolled in the auto IRA if the number of employees is 50 or more and constitute at least 10% of the employer's total workforce.

Default investment options: The Senate bill sets the default investment option as a principal preservation fund for the first $5,000 of savings and then a life-cycle or balanced fund for accounts above $5,000 and investment fees and structures will be regulated by federal agencies. The House bill would set the default investment option as a principal preservation fund, a life-cycle fund or a balanced fund.

Diversification requirements for R-Bond investors: Under the Senate bill, account balances of $5,000 or more will (after notice and opportunity to opt-out) be automatically transferred and invested in the life-cycle or balanced fund provided by a default auto IRA provider. The House bill would allow participants to remain in the R-Bond indefinitely.

Regulation of Auto IRA providers: The Senate bill would provide a rather robust regulatory scheme for auto IRA providers including providing the Treasury Department with "such information" as the agency may require and requiring the providers to meet certain "standards" that Treasury may impose. Auto IRA providers must report the fees charged for auto IRAs on the Treasury website. The House bill would establish a website for information on auto IRA providers, but does not enumerate additional authority provided to the Treasury Department in this area. The House would defer to the "Automatic IRA Advisory Group" to make decisions about disclosure of auto IRA fees and low-cost investment options.

Types of Auto IRA providers: The Senate bill details the type of entities that the Treasury Department may authorize as approved auto IRA providers, including record keepers, multiple employer plans and other authorized intermediaries. The House does not detail the various types of providers that the Treasury Department may include on its authorized list of auto IRA providers.

Investment guidelines for Auto IRA participants: The Senate bill would direct the Departments of Treasury and Labor to develop guidelines for retirement plan investing and would require that auto IRA participants receive such information. The House bill would require that participants be given the existing Department of Labor website that contains investment information and guidelines.

Questions or comments on this legislation should be addressed to Kathryn Ricard ( kricard@eric.org ).

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