During the Obama administration, the states are encouraged to create auto IRA programs that enable employers without a retirement plan to deposit a part of the workers’ paycheck automatically into a retirement account. Currently, five states are pursuing this initiative. It is a voluntary program, allowing employers to choose whether they want to contribute. The auto-IRA plans are liked by many because only about 50% of the private sector companies have some form of retirement savings coverage. The auto-IRA plans provide an opportunity for workers to save money even if their employers don’t have a retirement plan.
One of the main concerns for the auto-IRA programs is the coverage by the Employee Retirement Income Security Act. It is a consumer protection offered by the federal government for the retirement plans. Without the ERISA coverage, states must ensure protection. Some lawyers argue that the program won’t be covered by ERISA. To clear the issue, the Department of Labor finalized ‘Savings Arrangements Established by States for Non-Government employees’ rule cleaning that the auto-IRA plans are not covered by ERISA. This has encouraged several states to adopt the plan.
Now, the Trump administration is favorable for the Republicans and the congress is trying its best to dissolve the new rule. Canceling the new rule won’t affect the program altogether. It will only create uncertainty for the program and this can discourage the states from offering auto-IRA programs. A few states including Oregon is ready to launch the program and canceling the rule now will only make the states discuss the repercussions with the lawyers.
A number of private employers are not interested in participating in the popular 401K retirement program. The auto-IRA program only serves as an alternate retirement plan if the employers wish to help their workers to save money. It is important to note that this is not a mandatory program and the state will only make it possible for the employers to encourage their workers to save money. The businesses need not participate in the program if the workers are not interested in saving money for the future.
The auto-IRA program is not a perfect program and it has invited criticism from several financial institutions such as the Chamber of Commerce. The state run auto-IRA programs will be implemented differently in different states and this will result in fewer protections for the investors.
The supporters of the program argue that even though the auto-IRA program is not a substitute for the 401K program, it is vital to encourage retirement security. Those who argue against it consider Wall Street profits greater than workers’ retirement plans. However, the Republicans believe that the new ruling will not help the states and cities to encourage middle-class families to save. Those who oppose the program argue that the states and cities have their own alternatives in place and a new law will only have a negative effect. The AARP has commented that while the program is not perfect, any kind of coverage is better than no coverage at all for retirement planning.