Automatic Retirement Savings Deductions Gain Broad Support

One of the goals of major pension reform legislation Congress approved last year was to get more Americans to save for retirement by allowing companies to automatically enroll employees in 401(k) plans.

But that didn’t help the estimated 75 million people who work for employers who don’t offer retirement benefits. Bills recently introduced in the House and Senate attempt to fill the gap.

The legislation requires companies with 10 or more employees to offer workers an automatic payroll deduction into an individual retirement account. Employers do not have to match employee contributions, and tax credits offset administrative costs. Employees can opt out of the plans if they wish.

“The unfinished business of the Pension Protection Act is the half of our workforce that doesn’t have a retirement plan,” says J. Mark Iwry, a nonresident senior fellow at the Brookings Institution in Washington and a former benefits tax counsel at the Treasury Department.

The idea has drawn bipartisan support in both houses of Congress. Sens. Jeff Bingaman, D-New Mexico, and Gordon Smith, R-Oregon, and Reps. Richard Neal, D-Massachusetts, and Phil English, R-Pennsylvania, are championing similar bills. Hearings could begin in the House this summer.

Support for legislation that spans Capitol Hill has been rare this year. Bills passed with gusto by the House tend to halt in the Senate.

But the atmosphere may be different for the automatic IRA measure, which also has united disparate think tanks like the liberal Brookings Institution and the conservative Heritage Foundation. AARP also is on board.

The proposal will avoid the political shoals that sunk President Bush’s idea to establish private Social Security accounts, Neal says.

“We’re adding on to Social Security, as opposed to subtracting something from it,” he says. “Not only is there going to be common ground between the two chambers, there’s going to be broad bipartisanship.”

Advocates stress that implementing IRA deductions won’t pose a burden on employers. It would just be another line item on the payroll.

“We haven’t gotten any serious opposition to this,” Bingaman says. “It’s not a major additional responsibility.”

The bill is a modest first step in encouraging companies to establish their own retirement benefits for employees, according to proponents. The hope is that the automatic IRA makes employers comfortable with payroll deductions and will lead to 401(k) plans.

“We regard the automatic IRA as a way of getting started,” says David John, senior research fellow at the Heritage Foundation.

It’s not just companies that will embark on the retirement savings path, but also employees. Pierre Randolph, a build­ing engineer at an apartment complex in Washington, says he is grateful that his employer, Borger Management, implemented an automatic IRA deduction 10 years ago.

Randolph, 44, has been able to save nearly $30,000 for retirement while two of his children have gone to college. A third one is about to enter.

Without IRA access, “I wouldn’t have had the opportunity to put this money away,” he says.

He encourages his colleagues to take advantage of an IRA. “There’s nothing to think about,” he says he tells them. “Your children are getting older and so are you.”

Mark Schoeff Jr.