The Automatic Revolution: Legislation Would Provide Tax Credit for Employers to Channel Contributions to an IRA

Publication: Pensions & Investments

Author: Sen. Jeff Bingaman and Sen. Gordon Smith


11/12/2007 - There is a growing concern among American economists, financial analysts and policy makers that Americans are not financially prepared for retirement. According to investment professionals, a comfortable retirement requires an annual income of about 75% of pre-retirement earnings. For most workers, Social Security will not cover that amount.

The traditional defined benefit pension plan has given way to one that focuses on employee contribution instead. Too many Americans, however, are not using traditional savings vehicles to prepare for retirement. Nearly one out of two American workers — an estimated 75 million — currently have no employer-sponsored saving plan and therefore no vehicle for saving. Many are moderate- to lower-income workers and small business employees whose employers don’t sponsor savings plans.

Others are daunted by the complexity of private pension plans. Today, eligible workers are required to not only take the initiative to save, but also to bear more investment risk, and make more of their own decisions about their retirement saving. When faced with such complex choices and paperwork, many workers choose not to enroll at all.

For others, saving for retirement has taken a back seat to other financial issues, such as paying for their children’s education, buying a new home, or paying for skyrocketing health-care costs. With Americans living longer than ever before, retirement savings should be increasing, rather than decreasing, to keep pace with the needs of those facing retirement.

We believe that Americans shouldn’t need an advanced degree to do something as elementary and important as saving for their future. That’s why we’ve introduced a bill to offer employees without access to an employer-sponsored savings plan the opportunity to save through an automatic IRA.

Read the full article The Automatic Revolution on the Pensions & Investments Web site.

Sen. Jeff Bingaman, D-N.M., and Sen. Gordon Smith, R-Ore., both serve on the Senate Committee on Finance and are co-sponsors of S.3952, the Automatic IRA Act.

Pew is no longer active in this line of work, but for more information visit the Retirement Security Project on PewHealth.org. 

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