6 December 2021

Auto-IRA Bill Passes House Panel

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The House Ways and Means Committee passed by a 22-20 vote late Thursday Rep. Richard Neal’s auto-IRA bill.

The legislation, which is now headed to the House Budget Committee, requires employers that have been in existence for at least two years, do not sponsor a retirement plan, and employ five or more people to automatically enroll those employees in IRAs or 401(k)-type plans. After enrolled, workers could decline to participate or drop out at any time.

To offset administrative costs, employers would receive a tax credit, Neal, the committee’s chairman, said.

Neal is marking up Thursday and Friday legislative proposals under the budget reconciliation instructions.

Neal’s bill also makes the Saver’s Credit refundable.

“Current law includes a nonrefundable tax credit — called the Saver’s Credit — for eligible taxpayers who make elective deferrals to tax-favored retirement plans or contributions to IRAs,” the Massachusetts Democrat said.

“The investments we’re considering would make the Saver’s Credit refundable, so that those without any income tax liability receive a benefit,” Neal said. “The proposal also would require the credit amount to be contributed directly to a tax-favored retirement account, in effect, acting as a matching contribution for savers.”

Neal’s bill also requires “employers to offer employees with at least a $200,000 vested retirement account balance the option to take a distribution of up to 50% of savings to purchase a lifetime income solution,” according to the Insured Retirement Institute. “This feature can provide a sustainable protected income stream that cannot be outlived.”

Neal went on to explain that automatic IRAs and Saver’s Credit enhancements “would dramatically expand retirement savings in the United States.”

According to recent analysis commissioned by the American Retirement Association, implementing these proposals could add up to $7.3 trillion in additional retirement savings over a 10-year period and create more than 63 million new retirement savers, Neal said.

Estimates also state that the auto-IRA and Saver’s Credit enhancements would result in 7 million new Black savers and 10.8 million new Latino and Latina savers, Neal said. More than 98% of new savers make less than $100,000 per year.

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