The U.S. Government Accountability Office (GAO) issued a report in August that projected changes in retirement savings should a federal automatic payroll deduction IRA proposal become law. The report’s findings were made public in late September.
The report, which was prepared at the request of Rep. Richard Neal (D-MA), found that 36% of households across all income groups could see an increase in their retirement savings if auto-IRAs were implemented. In addition, households in the lowest earnings quartile would benefit the most, as the GAO calculated that the projected median annuity for those households could increase by 66%.
The findings in the GAO report are not surprising. Research from the Employee Benefit Research Institute (EBRI) has shown that workers earning between $30,000 and $50,000 are 15 times more likely to save through a workplace plan than to save in an IRA on their own. The GAO report provides support for using the auto-IRA structure to make payroll deduction retirement savings more widely available, especially to employees of small businesses, where the lack of retirement plan sponsorship is the most pronounced.
ASPPA has been a long-time supporter of auto-IRA proposals as a means of dramatically expanding access to workplace retirement savings. Since contribution limits for IRAs are less than for employer-sponsored 401(k) plans, auto-IRAs would not replace current 401(k) plans. In fact, once employers and employees get used to payroll withholding for retirement savings through auto-IRAs, employers may be more comfortable moving up to a SIMPLE plan or a 401(k) arrangement. Rep. Neal’s current auto-IRA legislation, H.R. 2035, would improve the qualified plan start-up credit for small businesses to encourage employers to adopt a 401(k) program instead of an auto-IRA arrangement.
Andrew Remo is ASPPA’s Congressional Affairs Manager.
