WASHINGTON — At least seven members of Congress, including the chairman of the Senate Finance Committee, are planning to reintroduce legislation that would require many small businesses not offering retirement plans to enroll their employees in individual retirement accounts automatically.
First introduced in the last Congress, the legislation is expected to make financial advice more accessible to 71 million moderate-income workers, according to the financial advisers and pension experts who fashioned the proposal. Also, the bill would give advisers a foot in the door to small-business owners.
The proposal would require small businesses that employed more than 10 people, had been in business for at least two years and did not provide a retirement plan to offer employees payroll deduction plans for IRAs. Employees could elect not to participate in the IRAs.
Some advisers see an opportunity in the making.
“Those of us who choose consciously to work with middle-income people … are excited about any initiative that will help people save more,” said Kay Conheady, the principal of Apropos Financial Planning LLC, a fee-only investment advisory firm in Rush, N.Y. The firm works primarily with clients whose annual household income is below $100,000.
The legislation is a chance to advise people on how to invest their retirement savings. “People really do want somebody to just tell them what to do. A lot of my clients are in that boat,” Ms. Conheady said.
Her chief worry about the proposal is that employers would not be held to be fiduciaries as they currently are with 401(k) plans. Simplification of retirement plans such as 401(k)s is preferable to setting up another type of savings vehicle, Ms. Conheady said.
Prospects are good that the bill will move forward this year, said Mark Iwry, a senior adviser to The Retirement Security Project, a retirement savings research and advocacy organization that is supported by The Brookings Institution of Washington.
“There’s a recognition that this addresses precisely what [the Pension Protection Act] did not even purport to address — the other half of the population,” workers who do not have access to employer-
sponsored retirement plans, said
Mr. Iwry, who helped develop the proposal.
Taking another shot
The sponsors of the legislation in the last Congress, which include current Senate Finance Committee Chairman Max Baucus, D-Mont., plan to reintroduce the measure this year, their spokesmen said. Sen. Gordon Smith, R-Ore., ranking member of the Senate Committee on Aging, expects to introduce the bill at the end of the month, spokeswoman Kimberly Collins said.
Other sponsors include Sens. Jeff Bingaman, D-N.M., Kent Conrad, D-N.D., Herbert Kohl, D-Wis., John Kerry, D-Mass., and Rep. Phil English, R-Pa.
The proposal is similar to the automatic-enrollment provision for 401(k) plans included in the pension bill that was enacted last year.
Employers would have the option of sending employee payroll deductions to IRAs chosen by employees. But the funds also could be sent to financial services companies chosen by employers or to a government-administered system similar to the Thrift Savings Plan for federal employees.
Workers under the age of 50 could contribute up to $4,000 annually to IRAs. Those 50 and older could contribute $5,000 a year. Employers would not have to make contributions to the plans.
“It’s a retirement plan on training wheels,” said David John, a senior research fellow at The Heritage Foundation, a free-market-oriented think tank in Washington. He helped develop the proposal with Mr. Iwry.
Sky-high enrollment rates
Companies that have adopted automatic enrollment for 401(k) plans have experienced participation rates as high as 90% to 95% of their work force, compared with 70% for companies without automatic enrollment, said Brigitte Madrian, professor of public policy and corporate management at Harvard University’s John F. Kennedy School of Government in Cambridge, Mass.
An automatic-enrollment system could give advisers an introduction to more small-business owners, whom they could counsel to set up SIMPLE IRA and 401(k) plans that allow greater contributions. “You never can tell what small-business relationship might be the tip of an iceberg [to] somebody who wants to work with you on a more complex basis,” said Gil Armour, a San Diego-based financial adviser with
AIG Financial Advisors Inc. of Phoenix.
Although initially account balances will be low, the accounts provide an opportunity for financial advisers to work with more employees than they have in the past, Mr. Armour said.
Longer term, the biggest effect for advisers could be the rollover market, said Trey Smith, an estate- and business-planning specialist in Nashville, Tenn., with SunTrust Investment Services Inc. of Atlanta. “It will cause a lot more money to move around, which is always good for the advisers,” he said.
