President Obama wants as much as $1 billion to establish a federal organization to oversee his proposed automatic-IRA plan.
President Obama wants as much as $1 billion to establish a federal organization to oversee his proposed automatic-IRA plan.
The specific government re-sources devoted to this program — which could enroll an estimated 75 million people in direct-deposit individual retirement accounts — will be determined over the next several months, according to administration officials.
But in a brief description of this “automatic-workplace-pension” proposal that was included in the president's $3.6 trillion budget this month, administration officials are already angling to cover “costs of establishing a new agency.”
Specifically, the automatic-IRA agency would carry a $200 million startup price tag in 2010 and up to $1 billion in federal support over time, according to details disclosed in the budget.
No explanation about how this money would be deployed was included in the budget. But in asking for up to $1 billion, “we're trying to make sure that we anticipate all of the program's potential needs,” said Tom Gavin, deputy associate director for strategic planning and communication in the White House Office of Management and Budget.
He added that an automatic-IRA agency could be established as a new stand-alone entity, specifically to oversee the administration of this program, or it could operate as part of an existing government agency. Those details will be hashed out in the coming months.
The administration estimates that nearly half of the 150 million working Americans do not have access to a retirement plan in the workplace. This program, it noted in the budget, would encourage roughly 80% of lower and middle-income workers to save for retirement — an increase from current levels of just 15%.
“When you look at our retirement system, this coverage gap is one of the most pressing problems,” said Beth Almeida, executive director for the National Institute on Retirement Security in Washington.
“There are too many people who simply don't have access to any forms of employer-sponsored plans, and the administration has made it clear that filling in this gap is at the center of its focus.”
The administration “has clearly placed a high premium on establishing the auto-IRA program,” said David John, a senior research fellow at the The Heritage Foundation in Washington and one of the co-creators of the original auto-IRA proposal.
Despite indications of support, the White House will face resistance to its auto-IRA proposal. Employer groups — including the U.S. Chamber of Commerce — have already noted that companies should not be subject to burdensome federal mandates.
Financial advisers also have railed against the program, with 84% of advisers polled by Berwyn, Pa.-based Brinker Capital in March opposed to any attempt by the federal government to require companies to steer workers into retirement accounts.
Opposition to an auto-enrollment IRA program may increase now that it carries a price tag, noted Doug Dannemiller, a senior analyst at Boston-based research firm Aite Group LLC. “There are other ways to encourage saving for retirement that would be easier to execute — and won't require the government to spend upwards of $1 billion,” he said.
In particular, Mr. Dannemiller suggested that the government could increase the contribution limit on IRAs — which is $5,000 for 2009 — or perhaps lower the capital gains tax rate on taxable accounts.
E-mail Mark Bruno at mbruno@investmentnews.com.
