Bill would mandate auto-enrollment retirement plans for employers
![Woman giving mental health consultation](/en-us/insights/law-and-policy/bill-would-mandate-auto-enrollment-retirement-plans-for-employers/_jcr_content/root/insight-wrapper/lead/lead-media/image.coreimg.jpeg/1709922281718/editorial-672153439-woman-giving-mental-health-consultation-2880x1620.jpeg)
![Woman giving mental health consultation](/en-us/insights/law-and-policy/bill-would-mandate-auto-enrollment-retirement-plans-for-employers/_jcr_content/root/insight-wrapper/lead/lead-media/mobile-image.coreimg.jpeg/1709922281724/editorial-672153439-woman-giving-mental-health-consultation-1536x1536.jpeg)
March 5, 2024
Recently introduced House legislation — the Automatic IRA Act of 2024 (HR 7293) — would effectively require most private-sector employers that don’t already sponsor a retirement plan either to maintain an “automatic contribution plan” or enroll employees in automatic individual retirement arrangements (IRAs) beginning in 2027. The bill would also direct the Treasury Department to provide guidance enabling automatic IRAs for independent contractors and gig workers. Sponsored by Rep. Richard Neal, D-MA, the top Democrat on the House Ways and Means Committee, the new measure is unlikely to advance this year in the Republican-controlled House. Nonetheless, the bill has support from industry trade groups and could get a major boost next year if Democrats win control of Congress.
Exceptions for certain sponsors
Although the bill wouldn’t technically require auto-enrollment retirement programs, employers that fail to maintain a compliant automatic contribution plan or IRA program in 2027 or later would generally owe a $10 per employee per day excise tax (indexed for inflation). Exceptions for unintentional failures could cap, reduce or waive the tax. The bill would exempt the following employers from the tax:
- Pre-enactment plan sponsors. A broad exception applies to sponsors of qualified retirement — including defined contribution (DC) and defined benefit — and 403(b) plans, simplified employee pensions (SEPs) and savings incentive match plans for employees of small employers (SIMPLE plans) established on or before the bill’s enactment. These plans wouldn’t have to include auto-enrollment features or comply with the bill’s other substantive requirements.
- State-mandated auto-IRA participants. The tax wouldn’t apply to employers who automatically enroll employees in state-mandated IRA programs already in existence before 2027.
- Governmental and church plan sponsors. The bill would exempt sponsors of governmental or church plans.
- Small and new businesses. Businesses employing 10 or fewer employees receiving $5,000 or more in compensation in the prior calendar year would be exempt from the tax. The bill would also exempt any employer in business less than two years (taking into account any predecessor employer).
Key features of automatic contribution plans
Under the bill, an automatic contribution plan would be a qualified DC, 403(b) or SIMPLE IRA plan with the following features:
- Eligibility rules. Eligibility for qualified and 403(b) plans would generally extend to employees aged 21 or older who have completed one year with 1,000 hours of service, as well as long-term part-time workers with 500 hours of service in two consecutive 12-month periods. (Collectively bargained and certain other employees wouldn’t have to be covered.)
- Automatic enrollment and escalation. Plans would have to automatically enroll eligible employees at a minimum deferral rate of 6% (but no more than 10%) of compensation in the first year, with subsequent annual 1% increases of the minimum rate by 1% a year to 10% (but no more than 15%). Employees could opt out or affirmatively elect a different contribution level.
- Investment requirement. Plans would have to invest participant contributions in target-date or life-cycle funds meeting the requirements for qualified default investment alternatives under the Department of Labor (DOL) regulations, unless a participant affirmatively elects other investments.
- Lifetime income feature required. Qualified and 403(b) plans would have to offer a lifetime income feature that would let participants with vested accounts exceeding $200,000 receive at least 50% of their account balance as guaranteed lifetime income. The bill provides that a plan wouldn’t violate the Internal Revenue Code’s Section 401(a)(4) nondiscrimination requirements merely because employees with account balances below this threshold aren’t offered a lifetime income feature. SIMPLE IRAs would be exempt from this requirement.
Automatic re-enrollment and employer contributions would remain optional
Application of SECURE 2.0’s auto-enrollment requirement
Automatic IRA alternative
Instead of offering an automatic contribution plan, employers could adopt an automatic IRA with the following features:
- Automatic enrollment and escalation. The same default contribution levels that apply to automatic contribution plans would apply to auto-IRA arrangements.
- Broader eligibility rules. Employers would generally have to offer an auto-IRA to employees aged 18 and older who have completed three months of service.
- Default Roth treatment. Employees could choose to contribute to either a traditional IRA or Roth IRA, but a Roth IRA would be the default unless an employee affirmatively elects otherwise.
- Designated trustee or custodian. Employers could select a designated trustee or custodian to receive all employees’ IRA contributions. The trustee or custodian would have to be a certified provider identified on a website maintained by the Treasury Department in consultation with a new Automatic IRA Advisory Group. Employers could also (but aren’t required) to let employees select a different IRA provider to receive their contributions, including one not on the Treasury Department website.
- Penalty-free withdrawals in first 90 days. The 10% early withdrawal penalty on distributions before age 59-1/2 wouldn’t apply to an employee’s withdrawal of default contributions within 90 days of initial automatic enrollment in the IRA.
Small employer tax credits
ERISA status uncertain
Auto-IRAs for nonemployees
Related resources
Non-Mercer resources
- HR 7293, Automatic IRA Act of 2024 (Congress, Feb. 7, 2024)
- Press release (Congress, Feb. 7, 2024)
- Bill summary (Congress, Feb. 5, 2024)
Mercer Law & Policy resources
- Resources for tracking state and local retirement initiatives (regularly updated)
- Road-testing SECURE 2.0’s auto-enrollment mandate for new DC plans (Feb. 14, 2023)
- Judge finds CalSavers not preempted by ERISA (April 2, 2019)