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April 17, 2012

Pursuing Universal Retirement Security Through Automatic IRAs and Account Simplification


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[1] For a discussion of Social Security’s finances, see “Social Security 2011 Trustees Report Shows Permanent Deficits” by David C. John, Heritage Foundation WebMemo No. 3256, May 16, 2011, at: http://www.heritage.org/research/reports/2011/05/social-security-2011-trustees-report-shows-permanent-deficits.

[2] In the Conference Report to the Tax Reform Act of 1997, Congress stated that "employers that choose not to sponsor a retirement plan should be encouraged to set up a payroll deduction [IRA] system to help employees save for retirement by making payroll-deduction contributions to their IRAs" and encouraged the Secretary of the Treasury to "continue his efforts to publicize the availability of these payroll deduction IRAs" (H.R. Rep. No. 220, 105th Cong., 1st Sess. 775 [1997]). IRS and Labor guidance was given in IRS Announcement 99-2, “Payroll Deduction IRAs,” and Department of Labor Interpretive Bulletin 99-1 (June 18, 1999), 29 C.F.R. 2509.99-1(b).

[3] The only exception would be an employer that sponsored a retirement plan but excluded a major portion of its workforce – for example, excluding an entire division or subsidiary that is not union-represented or foreign – in which case the employer would be required to offer payroll deposit saving to the rest of the workforce.

[4] James Choi, David Laibson, Brigitte Madrian, and Andrew Metrick, "Optimal Defaults and Active Decisions," NBER Working Paper No. 11074, January 2005.

[5] A national website could provide firms these standard enrollment and election forms, as well as provide an opportunity to promote employee education and best practices as they evolve, such as automatic enrollment and potentially, lifetime guaranteed income.

[6] As an example, see “Increasing Annuitization of 401(k) Plans with Automatic Trial Income” by William Gale, Mark Iwry, David John and Lina Walker at: http://www.brookings.edu/papers/2008/06_annuities_gale.aspx

[7] The final report of the President’s Advisory Panel on Federal Tax reform is available at: http://govinfo.library.unt.edu/taxreformpanel

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