What You Need to Know
Proposed legislation would establish portable retirement savings accounts sponsored by the federal government.
Low-to-middle income Americans who contribute to these plans would also qualify for matching contributions.
Lawmakers in the Senate have recently proposed legislation that would establish portable retirement savings accounts sponsored by the federal government. Low-to middle-income Americans who contribute to these plans would also qualify for matching contributions from the government (the match would phase out as income levels rise).
We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about whether the proposed federal auto-IRA program would have a negative impact on the retirement savings market.
Below is a summary of the debate that ensued between the two professors.
Bloink: Another tax-advantaged retirement savings option is not going to compromise those that currently exist. Small businesses are familiar with the existing structure. There’s no reason for them to forgo offering their company-sponsored retirement plans in favor of the federal version, which not all employees will prefer (and, of course, not all employees would be eligible for the government match — which would essentially prevent most employers from completely eliminating their retirement plans).
Byrnes: The obvious answer is yes, these types of government-subsidized retirement plans would have a negative impact on the retirement savings market as a whole. If the federal government is sponsoring a program offering portable IRAs, why would private retirement plans continue to exist? How can these plans compete with a proposal that would automatically require the federal government to match contributions of certain lower-income taxpayers? Retirement plans aren’t cheap or easy to administer, and if the government is going to foot the bill, many small businesses will simply shut their plans down — hurting retirement savings in the long term.