Automatic IRAs -- a Quick Fix for Workers Without Pensions?

The plan also envisions having entities that hire individuals as independent contractors provide automatic IRAs, with contributions deducted from their payments.

To get employers to go along, Iwry and John propose a combination of carrot and stick.

Under their plan, all but the smallest and newest employers would be required to offer automatic IRAs to their workers unless the employer already offers, or chooses to offer, a conventional retirement plan such as a Simple IRA, 401(k) or traditional pension.

Employers would be entitled to a temporary tax credit -- $250 or $300, the plan suggests -- to offset start-up costs, which Iwry and John think would be modest because many employers already have or contract for automated payroll systems, and because employers would be acting merely as conduits for contributions, not maintaining retirement plans.

Thus, there would be none of the rules that many companies, particularly small ones, complain about. An employer would not have to make contributions, hold assets, meet various anti-discrimination and other rules, or determine whether employees are eligible.

Instead, automatic IRAs would be just that: IRAs, governed by the rules that apply to those accounts, including the annual contribution limits, which currently are $5,000 for workers 50 and older, and $4,000 for younger workers. (Iwry and John don't envision a Roth-type option, however.)

"For many if not most employers, offering direct deposit or payroll deduction IRAs would involve little or no cost," the authors said.

And, with automatic IRAs, "employers can promote saving even if they are not ready to sponsor a [conventional retirement] plan," Iwry said. It would also give such employers something to offer workers for retirement, rather than having to tell potential hires that there's nothing.

If the government were willing to help, the automatic IRAs could be matched to a program for low-income workers in which, say, the first $500 of contributions could be matched by the employer, which could then recover its money through a tax credit.

Iwry said he and John hope ultimately that automatic IRAs would encourage employers to "graduate" to "real" retirement plans, perhaps because workers get a taste of saving and find they'd like a plan with a higher limit. Simple IRAs, for example, allow $10,000, and 401(k)s $15,000 (plus a "catch-up" for those 50 and up) -- "a nice laddered set of incentives," Iwry said.

The plan has already attracted favorable notice from a number of experts and interest groups. Peter R. Orszag of the Brookings Institution called it a "powerful and pragmatic proposal" likely to result in a net increase in saving. That is in contrast to most tax-favored saving programs, which he said attract mostly savings that would have been made anyway.

David Certner of AARP called it "the right proposal at the right time."