Democrats and AARP want to make IRA enrollment automatic

The White House and congressional Democrats, with the backing of the AARP, will soon put forth a plan to automatically enroll new private-sector employees in investment retirement accounts (IRAs).

The measure will apply to new workers at firms that don’t currently offer 401(k) retirement plans, according to AARP, the lobby group for seniors. Workers would have the choice of opting out of the accounts.


The Obama administration sees the auto-enrollment system as a way to increase savings.

“There’s this inertia that keeps people from taking advantage of saving opportunities,” said Cristina Martin Firvida, the director of economic security in AARP’s government relations department. “It’s all sort of foundationally related to that, how people choose to save.”

Top officials in the administration, including White House Budget Director Peter Orszag, Treasury Department senior adviser Mark Iwry and Cass Sunstein, the administrator of the White House Office of Information and Regulatory Affairs, have long championed the opt-out provision. They point to studies that show the arrangement leads to big increases in savings by workers.

Like other employer-based retirement accounts, the opt-out accounts proposed by Democrats would have tax benefits. It’s unclear whether they will be traditional tax-deferred accounts or Roth-style vehicles, in which account holders don’t pay taxes on withdrawals. Iwry, a retirement savings expert, has preferred Roth accounts in the past.

Obama himself has publicly called for people to do more saving for retirement.

“The fact is, even before this recession hit, the savings rate was essentially zero, while borrowing had risen and credit card debt had increased,” Obama said last September. “Half of America’s workforce doesn’t have access to a retirement plan at work. And fewer than 10 percent of those without workplace retirement plans have one of their own.”

Rep. Richard Neal (D-Mass.) and Sen. Jeff Bingaman (D-N.M.) have introduced similar IRA proposals in the past.

The auto-enrollment provision will get pushback from small-business groups.

“It’s another burden placed on business that’s coming from Washington, keeping business owners from hiring and investing,” said Bill Rys, the tax counsel for the National Federation of Independent Business. “They’re being told, ‘Here’s how you run your business.’ ”