If workers choose to participate, they will be eligible to invest in an IRA through payroll deductions, much like employees do with 401(k) accounts. To qualify, employees must be with the company for at least three months and be at least 18 years old. Workers not wishing to participate can opt out.
Employers will receive a $250 tax credit for each of the first two years of automatic IRA operation. Companies that fail to offer an automatic IRA for their workers will be subject to an excise tax of $100 for each employee who should have been covered.
Firms that must comply with the legislation will be phased-in and based on size.
In the first year after enactment, the requirement will only apply to firms with 100 or more employees; in the second year, firms with at least 50 workers must comply; in the third, companies with 25 or more workers must offer IRAs; and in the fourth, employers with 10 or more workers must comply.
Bingaman contends his bill will enable more workers to save for retirement.
"Last year, only half of all American workers had access to any type of retirement plan or account at work," he said in prepared remarks. "As a result, millions of Americans enter their retirement years with inadequate savings. Our bill will open the door to a secure retirement for nearly 42 million workers."
Sen. John Kerry (D-Mass.) is a co-sponsor of the bill, and the Obama administration has called on Congress to enact an automatic IRA measure.
The idea of allowing workers to automatically invest in an IRA is also supported by groups such as AARP, Consumers Union, the Minority Business Roundtable and the U.S. Women's Chamber of Commerce.
Bingaman and Kerry are members of the Senate Finance Committee, which has jurisdiction over tax policy and would be tasked with moving forward on the senators' bill.