Planned auto-IRA bill will test mood of Congress

Seeking bipartisan support for his effort, Sen. Jeff Bingaman, D.-N.M., plans to introduce a bill shortly that would require employers not offering a retirement plan to their employees to set up an automatic-payroll-deduction program for individual retirement accounts.

The bill is likely to be similar to the auto-IRA bill that Mr. Bingaman introduced last year. A companion measure was offered in the House by Rep. Richard Neal, D.-Mass.

In last year’s version, companies with fewer than 100 workers would have received a tax credit to establish the IRA. Firms that didn’t offer an auto-IRA would have been penalized. The measure also would have increased the tax credit available to small businesses to establish their own pension programs.

The bill was not approved before the end of last year’s congressional session, requiring its reintroduction during the current Congress.

The Obama administration is a strong proponent of the auto-IRA measure. In fact, it is included in the budget proposal the White House released in February.

J. Mark Iwry, deputy assistant Treasury secretary for retirement and health policy, said that automatic-enrollment programs have proved highly successful in getting employees into a retirement plan. About half of the U.S. work force does not have a company-sponsored plan.

“We’re hoping [the auto-IRA], if enacted, would produce a breakthrough in coverage,” Mr. Iwry said.

The Obama administration commitment to auto-IRA legislation, however, will have to overcome the resistance of House Republicans. In 2010, the bill did not garner a GOP co-sponsor.

As the health care debate illustrated, Republicans are wary of measures that prescribe policies to employers.

“Republicans are in no mood to impose any kind of mandate on small business,” said James Delaplane Jr., a partner at Davis & Harman LLP.

Jamie Kalamarides, senior vice president for retirement strategy and solutions at Prudential Financial Inc., said that Mr. Bingaman and the Obama administration are likely trying to find a way to make an auto-IRA palatable to Republicans.

One approach that would reduce costs, as well as administrative and fiduciary burdens, for small companies is something called a multiple-small-employer plan, he said.

The idea, which would allow small firms to purchase retirement plans in a pool while being separately liable, was included in a House bill last year designed to increase savings.

“That’s very appealing for the smaller employers,” Mr. Kalamarides said. “It looks like it’s getting broad support.”

While just about every retirement survey shows that Americans are not saving enough, partisan head winds confront any legislative proposal — including those involving saving, pensions and retirement.

Even with bipartisan sponsorship, the Lifetime Income Disclosure Act — introduced Feb. 3 by Mr. Bingaman, Sen. Johnny Isakson, R-Ga., and Sen. Herb Kohl, D-Wis., and in the House Feb. 11 by Rep. Rush Holt, D-N.J. — faces a tough political go.

The bill would require private-sector DC plans to disclose to participants on an annual basis the lump-sum total of their account and how much it would produce in guaranteed monthly payments.

By doing so, the bill addresses a widely acknowledged problem — people have little understanding of just how much money is required to finance a retirement lifestyle that equates to the one they enjoyed while working.

Mr. Delaplane predicts that the Labor Department over the summer will promulgate a regulation that encourages — but doesn’t mandate — employers to offer benefits statements.

“My guess is, the regulatory action on that issue will precede the legislative action,” he said.

The bill addresses an important concept in retirement planning, said Robert Holcomb, executive director of legislative and industry affairs at J.P. Morgan Retirement Plan Services.

“We are very much in favor of anything that would help plan participants understand what their retirement savings would translate into in retirement,” said Mr. Holcomb, who is hoping that the proposed bill would allow plan sponsors to provide projections about how an account could grow, based on future contributions or earnings.

“We would want to make sure that any legislation or regulation is crafted in such a way to let the industry continue to innovate and provide participants the most information,” he said.

Scott Holsopple, president and chief executive of Smart401k, also supports the idea of giving plan participants a road map for their retirement savings journey. He has qualms, though, about how the projected income would be portrayed.

“You have to figure out in a simple manner how to explain what an annuity is,” Mr. Holsopple said. “What I don’t want to see is this turn into a sales pitch for an annuity.”

Like most other issues, retirement is taking a back seat to deficit reduction in Congress, where the Republican majority in the House has made slashing federal spending its top priority.

“It’s more likely that we get relatively little attention in the short term and the attention we do get is an outgrowth of the deficit discussion,” Mr. Delaplane said.

But Mr. Kalamarides said that jobs and consumer confidence also are high on the congressional agenda and that retirement issues are closely related.

“You can’t talk about consumer confidence without talking about financial security,” he said. “Retirement security is at the top of the second tier of issues, right after the deficit and jobs.”

A Democratic leader in the Senate is ready to open a broad discussion on retirement security, zeroing in on what he contends are gaps that leave most workers vulnerable in their post-work lives.

Sen. Tom Harkin, D-Iowa, chairman of the Senate Health Education Labor and Pensions Committee, this year is continuing a series of hearings he began last fall.

“We’ve never had a coherent plan for a private retirement system,” he said. “We need to take a look at the retirement system and make it work for everyone.”

E-mail Mark Schoeff Jr. at [email protected].