Part of President Obama’s budget proposal would require employers who do not offer a pension plan to provide their employees with a direct-deposit retirement savings plan, modeled after a traditional Individual Retirement Account (IRA).
“The result will be that workers will be automatically enrolled in some form of savings vehicle when they go to work, making it easy for them to save while also allowing them to opt out if their family or individual circumstances make it particularly difficult or unwise to save,” according to the budget plan.
The theory behind the Automatic IRA is based on research that has shown that the key to saving is to make it automatic and simple. An Auto IRA would be put in place for each employee as soon as the employee with no waiting period.
The funds in the Automatic IRA accounts would be invested in a balanced lifetime account. These savings accounts would provide retirement savings in addition to Social Security.
According to the budget proposal, experts anticipate that this program will increase savings participation for low and middle-income workers to around 80 percent.