NCPA - National Center for Policy Analysis


April 12, 2007

Democrats did a skillful job of demagoguing President Bush's plan to let workers invest some of their Social Security taxes.  But now, another idea is waiting in the wings that could be far more popular, says Donald Lambro, chief political correspondent for the Washington Times.

The idea, promoted by the Heritage Foundation and the Brookings Institution, is the "automatic IRA," which would:

  • Enable workers (particularly those with low-incomes) in small businesses who have no employer-sponsored plan to put aside regular savings in an IRA through the power of the automatic payroll-deposit system used by 401(k) plans.
  • Further, employers could make participation automatic when they hire workers so that they would begin making regular payroll contributions unless they formally ask to opt out.

A few major design factors promise to make this idea popular with both businesses and workers, says Lambro:

  • The plan would result in little or no cost to employers who would be exempt from costly rules and regulations that govern 401(k)s and other retirement plans.
  • Businesses would be offered a tax credit in the first two years to encourage them to offer such plans and help them adjust to any administrative costs.
  • It would principally benefit moderate- to lower-income workers -- the 58 percent of the workforce that does not participate in any retirement plan, people who tend to have less education, do not save on a regular basis and usually work for small businesses.

The savings rate in our country, especially among this large uncovered part of the workforce, is abysmal, says Lambro. This idea would dramatically turn that rate around, helping millions to build wealth and some measure of retirement security.

Source: Donald Lambro, "Retirement plan could prove a winner,", April 12, 2007


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