The proposed Automatic IRA Act of 2010 is raising eyes across the country. The bill seems to suggest that Americans are not savings as much as they should for the future.

The government has long modified our behavior. Despite all the wild conspiracy theories you hear about, the modification is a fairly open process. The government does it through financial incentives. It offers financial incentives to get people to buy hybrid cars and disincentives to keep us from buying tobacco. 

The same is true for retirement. Nobody in their right mind would argue that Social Security is going to provide for anyone in another 10 or 20 years. Yes, you might get $1,000 a month out of it, but how far is that going to get you? No, the government has long faced up to this problem by creating major financial incentives enticing us to save in the form of 401k, IRA and Roth IRA options to mention but a few. It would appear that the government does not believe this is working well enough according to a new bill introduced into Congress.

A New Mexican Democrat, Senator Jeff Bingaman, has introduced the Automatic IRA Act of 2010 for consideration in Congress. The bill contains many clauses, but boils down to the very basic idea of forcing Americans to save money for their retirement. This is accomplished by forcing companies with 10 or more employees that do not offer retirement plans to automatically enroll employees in IRAs. Employees could opt out of the plan if they desired.

The bill contains very interesting particulars. That being said, it is important to understand that the bill will undoubtedly be changed as it winds its way through the legislature. The recent bill that extended unemployment benefits started out at 433 pages, but was reduced to six by the time the final version was signed into law!

So, what are the specifics of the bill as it stands? Employees 18 years old or older would be automatically enrolled in the IRA program. They would automatically contribute three percent of their paycheck, but could adjust the figure up or down. Employers would not be required nor could they voluntarily contribute to any IRA. Interestingly, the default selection would be a Roth IRA, which grows tax-free and is distributed tax-free as well. 

Now we get to the sneaky little detail. The default investment in the IRA would be a new form of…government bond. Employees could option out of this at any time under the current bill, but it will be very interesting to see if this option is still included in the final bill. Why? Well, the national debt is completely out of control and growing worse. What better way to pay for it than to effectively require employees to devote three percent of their paycheck to buying government bonds? 

Will the Automatic IRA Act of 2010 become law? It is difficult to say given the upcoming elections. Still, the fact there is an organized effort to accelerate retirement savings does not bode well for the future of the Social Security program and you should take that into account with your retirement savings. Contact us today at (800) 341-5433 or via this contact form to learn far more effective strategies for getting your retirement plan in order.