President’s tax reform proposal includes “Auto-IRA” requirement

In one of several initiatives announced by the White House prior to the annual State of the Union address, President Obama has unveiled several tax reform proposals affecting retirement plans, including a measure that would require most employers that don’t otherwise provide a retirement plan for workers to auto-enroll employees in an individual retirement account (IRA). The retirement proposals would, the White House says, give 30 million additional workers access to employment-based retirement plans.

IRA automatic enrollment

Under the President’s proposal, employers with more than 10 employees that do not otherwise offer a retirement plan to their workers would be required to automatically enroll their employees in an IRA. Employees would have the opportunity to opt out of participation in the plan. Smaller employers (those with 100 or fewer employees) offering an auto-IRA would receive a $3,000 tax credit to help defray administrative expenses. In addition, small employers who add an auto-enrollment feature to an already existing plan would receive a $1,500 tax credit.

Other proposals

In other retirement-related measures, President Obama would expand access to workplace retirement plans for part-time workers by requiring employers who offer plans to permit employees who have worked for the employer for at least 500 hours per year for three years or more to make voluntary contributions to the plan. Current participation rules permit the exclusion of employees who work less than 1,000 hours per year, regardless of the number of years employed.
Additionally, in an effort to limit the use of tax-favored retirement accounts as “tax shelters” for the wealthy, the President’s plan would bar contributions to and accruals of additional benefits in tax-preferred retirement plans and IRAs once balances are at $3.4 million. According to the White House, 300 wealthy taxpayers have accumulated more than $25 million each in IRAs.

Source: FACT SHEET: A Simpler, Fairer Tax Code That Responsibly Invests in Middle Class Families, 1/17/2015,

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