In recent years, the retirement plan industry has undergone a great many changes and now another change may be on the horizon.
In early August 2010, a
bill was introduced in the U.S. Senate that would (if enacted into law) require employers to offer their employees Individual Retirement Accounts (IRAs) in which to place their employee contributions.
The Automatic IRA Act of 2010 (a
summary of which is available online) was put forth by Senator Jeff Bingaman of New Mexico. The bill would eventually require that any employer with more than 10 employees, who did not already offer a qualified retirement plan, would need to establish IRAs for their employees. While employers would receive a tax credit to cover the expense of setting up the IRAs, they would not be required to make employer contributions to it.
The bill has a default employee contribution rate of 3 percent, though employees would have the ability to raise or lower that contribution percentage. Employees would also have the choice of contributing to either a traditional or Roth IRA. They would also be able to opt out of participating altogether.
After being enacted, the bill would offer the following phased approach for adoption:
- Year 1 – Would only apply to firms with 100 or more employees
- Year 2 – Applies to firms with 50 or more employees
- Year 3 – Applies to firms with 25 or more employees
- Year 4 – Applies to the originally prescribed limit of 10 or more employees
An employer already maintaining a regular retirement plan would not be required to offer automatic IRAs. However, if there was a department or division of the same company where employees were not offered the choice to participate in that retirement plan, the bill would require that they be offered automatic IRAs.