My Retirement Blog

Obama Automatic IRA Proposal

As part of Obama’s middle-class plan he includes a proposal for an automatic IRA. This has been proposed before but it has never been implemented. Here are a few details of this plan.

Under the plan certain companies that do not currently offer a retirement plan would be required to enroll their employees in an IRA. An automatic deduction of 3% would come out of the employee’s paychecks and be deposited into the account. The employee could opt to lower or raise the deduction or opt out altogether. It is not yet determined what would be the default investment for the IRA.

The positive benefit of an Automatic IRA would be that more workers would be covered by a retirement plan. Currently about half of the workforce lack employer-based retirement plans. Many workers delay contributing to a retirement plan and an Automatic IRA would greatly increase employee savings rates.

The negative aspect of an Automatic IRA is that it would be an added administrative expense for small businesses. Although those proposing the Automatic IRA state that the expense would be low it remains to be seen if that is actually the case.

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Andy Hough

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Comments

4 responses to “Obama Automatic IRA Proposal”

  1. Daddy Paul

    I see this proposal as a disaster. The objective is to force people to save. Too many are simply going to cash these IRA’s out. Next we will have the government telling us how to invest our IRA’s.

  2. Tom

    good point. they’ll cash them out early and end up on the losing end. i thought they were gonna make annuities mandatory, not IRA’s? either way, the gov’t should be telling anyone they HAVE to do something with their money. it’s not up to them.

  3. Tom

    meant to say they “shouldn’t be telling anyone…”

  4. Burt

    Sorry for the late comment, I just stumbled across this.
    Why is requiring IRA contribution any different than the proposal to invest some % of SS withholding that was proposed by GWB? It may be the only way to assure that people save something for retirement. If they don’t, we (taxpayers) will end up making up the difference. Lot’s of details to be worked out for sure, but the idea has merit.