The Automatic IRA Act of 2024, introduced by Representative Richard Neal, D-Mass., aims to significantly enhance retirement security for millions of U.S. workers. This groundbreaking legislation proposes a mandatory enrollment of employees in individual retirement accounts (IRAs) or other automatic-contribution arrangements if their employers, with more than 10 workers, do not offer a retirement plan. Let’s explore the specifics and potential impact of this proposed act.
Expanding Retirement Coverage
The primary objective of the Automatic IRA Act is to extend retirement coverage to employees, gig workers, and independent contractors, addressing the existing gaps in retirement savings. By leveraging automatic enrollment, the legislation seeks to ensure that a larger segment of the workforce can benefit from retirement savings opportunities. It’s designed to complement and safeguard employer-sponsored plans while also building upon and protecting state-facilitated automatic IRA retirement saving programs.
Key Provisions Of The Legislation
Under the proposed legislation, there are a handful of key provisions, including the following:
Mandatory automatic enrollment
Employers with more than 10 workers not offering a retirement plan would be required to automatically enroll employees in IRAs or other automatic-contribution arrangements, such as 401(k) plans.
Tax credits for small employers
The act proposes a new tax credit of $500 per year for three years for employers of up to 100 employees that offer enrollment in either a state or national automatic IRA.
Contribution requirements
The legislation mandates that all automatic contribution plans default at a minimum contribution of six percent, with an annual automatic annual increase of one percent until reaching 10%.
Lifetime income options
401(k)-type plans with more than 100 participants would need to permit participants to elect to receive at least 50% of their vested account balance in the form of lifetime income, with exceptions for participants with balances of up to $200,000. Lifetime income refers to a steady stream of income that lasts throughout an individual’s lifetime. This is often associated with retirement planning, where the goal is to ensure a consistent flow of money during retirement years. Examples of lifetime income include the following:
- Social security
- Pensions
- Annuities
Investment options
Automatic IRAs must offer employees a target date fund as the default investment, along with a principal preservation fund, a balance fund, and any additional options designated by the Treasury Department in the future.
Implications And Considerations
The Ways and Means Democrats highlighted that automatic IRAs have been instrumental in narrowing coverage and savings gaps across racial, ethnic, gender, and income lines, emphasizing the potential impact of the act on promoting retirement security for traditionally underserved demographics. In addition, workers could decline participation or opt-out at any time after enrollment, ensuring individual autonomy in retirement planning.
Exceptions And Safeguards
The legislation would allow several exceptions, including companies with 10 or fewer workers, those already offering a qualified plan, those in business for less than two years, or those with governmental plans or church plans. In addition, it would not affect workers currently enrolled in a state-sponsored plan.
The Assistance Of A PEO
In navigating the intricacies of the Automatic IRA Act of 2024, business owners may find value in partnering with a professional employer organization (PEO) like GMS. A PEO can offer comprehensive support in managing retirement plans, ensuring compliance with the new legislation, and facilitating the seamless implementation of automatic enrollment and contribution requirements. By leveraging the expertise of a PEO, business owners can navigate the complexities of the act with confidence, streamline administrative processes, and ultimately prioritize the financial well-being of their employees while staying ahead of regulatory changes. Contact our 401(k) experts today!