Monday, June 30, 2008

Auto-IRAs in the news

The Politico
reports on automatic-enrollment plans for IRAs being pitched by the ideological odd-couple of the Brookings Institution's Mark Iwry and the Heritage Foundation's David John. The highlights:

Take the much-heralded "Auto-IRA" proposal, which could help head off the fiscal train wreck of tens of millions of Americans being unable to afford retirement. Scholars David John and Mark Iwry, who have pioneered the proposal, come from opposite sides of the ideological spectrum: John is a senior research fellow at the Heritage Foundation; Iwry, a senior fellow at the Brookings Institution.

In 2005, John and Iwry were on opposing sides of the debate over President Bush's proposal to incorporate personal retirement accounts into Social Security. John was one of Bush's most influential advisers on the plan, and Iwry was one of its many critics. Bush's Social Security overhaul crashed and burned. In the aftermath, John and Iwry were speaking together on a policy panel and heard their views converge on what else the government might do about the sad state of Americans' retirement savings.
The pair got together and, after about a year of work, their first paper on an automatic IRA program was born on Valentine's Day 2006.

The gist of their mandate for businesses that don't offer any retirement benefits: Employers above a certain threshold, perhaps 10 employees, would set up a system for employees to automatically enroll and make payroll contributions to an IRA — a tax-favored individual retirement account that's the personal version of a 401(k). Employers would get a tax credit to compensate for administrative costs, and employees could opt out.

The benefit, supporters say, is that many more of the 75 million working Americans without workplace retirement plans — nearly half of all workers — would start saving. And taxpayers wouldn't have to step in at a later date to support throngs of impoverished seniors.

Check out the Retirement Security Project for more details.

My take is that auto-enrollment IRAs are both good policy and a potential way around the "add on" versus "carve out" personal account debate that has made progress on Social Security reform difficult over the past several years.

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