The Retirement Security Project, a joint undertaking of Georgetown University and the Brookings Institution, has set itself the goal of taking retirement savings in America to the next frontier, which means enabling a greater number of American workers–especially those in the middle- and lower-income brackets–to benefit from the security that 401(k) plans, IRAs, and other retirement accounts can offer.
It is an ambitious goal, but necessary, say David John and Mark Iwry, principals of the Project.
"Last year's Pension Protection Act (PPA) was mainly directed toward employers and employees that have a retirement plan," says Iwry, who between 1995 and 2001 served as benefits tax counsel to the Treasury Department. "But about 75 million working Americans–half the workforce–have no plan at all. Our aim is therefore to address the needs of the 'other half,' those the PPA does not help."
"The portion of the American workforce that has worked for a company with a retirement plan has remained constant for decades," adds John, who is senior research fellow at the Heritage Foundation, a Washington-based conservative think tank. "We want to break through that barrier and get more companies to provide plans, and to get a greater number of employees to avail themselves of those plans."
Despite a more widespread participation in company retirement plans, it is still a challenge to get companies that don't have these yet to put them in place, says Iwry. To that end, one of the key undertakings of the Retirement Security Project is the Automatic IRA. This proposal calls upon employers to allow employees to contribute to their own IRAs by regular automatic payroll deposit. Employees would deduct and transfer a portion of their wages to their own IRAs, thereby making it much easier for individuals who don't have a company retirement plan to have at least some retirement savings.
The idea of the Automatic IRA has been met with great enthusiasm in the retirement finance space, and, both Democrats and Republicans have lauded it, Iwry says. Indeed, a bill entitled "The Automatic IRA Act of 2007," which was introduced in the Senate on April 18 (a companion bill is expected to soon be introduced in the House of Representatives) would give tens of millions of Americans this more effective employment-based method of saving for retirement. But beyond this, the automatic IRA is also likely to pave the way for more companies to sponsor retirement plans, says Iwry.