Federal auto-IRA would crowd out private-sector plans, critics say

investmentnews.com:

A federal automatic retirement savings program would undermine retirement plans offered by businesses to their employees, said critics of new federal legislation.

Sens. John Hickenlooper (D-Colo.) and Thom Tillis (R-N.C.) last week introduced the Retirement Savings for America Act, which would establish portable, tax-advantaged retirement accounts sponsored by the federal government. Low- and middle-income workers who use the accounts would be eligible for a contribution match from the government that would phase out at the median income level.

A trade group representing retirement plan sponsors is resisting the idea.

“Why would any business owner maintain a retirement plan if the federal government is going to take over all the costs and responsibility of providing retirement benefits?” said Brian Graff, CEO of the American Retirement Association. “They are creating an unlevel playing field where the federal product is unfairly subsidized relative to the private sector.”

The federal government doesn’t need a new retirement program when the one already in place — Social Security — needs to be fixed, said Angela Antonelli, a research professor at Georgetown University and executive director of the Center for Retirement Initiatives at its McCourt School of Public Policy.

“There is no need for the bill,” Antonelli said. “The federal government instead should be focused on Social Security’s fiscal sustainability.”

Under the Hickenlooper bill, the full- and part-time workers who don’t have access to a company retirement plan would be eligible for an account and automatically enrolled at 3% of their income, according to a fact sheet about the bill. Worker could increase or decrease their contribution and opt out at any time.