With the introduction of the Automatic IRA Act of 2007, S. 1141, automatic IRAs have become a topic of conversation again. The Automatic IRA is not a new idea – Congress has seen bills containing automatic IRA provisions in the past. Automatic enrollment in 401(k) plans is not a new idea either. Before the Pension Protection Act, sponsoring employers could automatically enroll employees into their 401(k) plans. PPA just added some important provisions which make automatic enrollment much more attractive, including eliminating state law concerns, providing for a safe harbor, allowing for automatic increases in the deferral rate, and provisions on investing the automatic contributions when the participant fails to provide investment instructions.
Automatic IRAs extend this trend one step further by permitting employees without access to a plan to defer into an Automatic IRA. The concept is the same as Automatic Enrollment in 401(k) plans but the deferral limit is much lower – $4,000 permitted into the IRA compared to $15,500 this year for a 401(k) plan. If the Automatic IRA Act of 2007 burdens the employer with setting up the IRAs, changing the payroll selections, and selecting the investment funds for the employee if they provide no investment instructions, the request by an employee to set up an IRA should make the employer consider whether a 401(k) plan with automatic enrollment is a better choice. Especially if the employer has been avoiding offering a retirement plan to employees because of concern over the time and expense of administering any type of plan. [tags]Pension Protection Act, automatic IRA, individual retirement account, IRA, automatic enrollment, 401(k), retirement, pension, ppa[/tags]
