Automatic IRA Act of 2025
Sponsored By: Representative Rep. Neal, Richard E. [D-MA-1]
Introduced
Summary
This bill would create a national framework for employer‑facilitated automatic retirement savings by requiring payroll‑deduction automatic contribution plans and automatic IRA arrangements. It sets rules on eligibility, default contributions, investments, fees, lifetime income options, employer duties, and enforcement.
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Bill Overview
Analyzed Economic Effects
9 provisions identified: 7 benefits, 0 costs, 2 mixed.
Small employers $500 IRA credit
If enacted, eligible small employers could claim a $500 tax credit for each taxable year for up to three years when they start an approved automatic IRA arrangement. To qualify, an employer must not have had an eligible employer plan in the two prior calendar years. The credit applies to taxable years beginning after December 31, 2025.
Ban on unreasonable non-ERISA fees
If enacted, plans and arrangements not covered by Title I of ERISA could not charge participants, beneficiaries, employers, or IRAs "unreasonable fees or expenses." The rule would apply to non-Title I vehicles covered by the bill and start for plan years beginning after December 31, 2027.
Automatic payroll IRAs and investments
If enacted, employers could automatically put pay into an employee's IRA by payroll deduction and would have to send those deposits by the last day of the month after pay. Absent an employee election, the IRA would be treated as a Roth by default unless the employee timely chooses otherwise. Employers would not be treated as breaking the law if payroll-deduction IRA deposits exceed the ordinary IRA deductible limit, and platforms must offer only specified default investment classes such as target-date, principal-preservation, and balanced options. The rule would apply to plan years beginning after December 31, 2027.
Default contribution rates and eligibility
If enacted, eligible employees would be auto-enrolled at a uniform percent of pay. The rate is at least 6% in the initial period, then 7%, 8%, 9%, and 10% in later years, and may not exceed 15% (with a 10% cap during the initial period). Most employees must be eligible, but employers could exclude people under certain ages, covered classes, or those who have not met service-entry rules. For employer-run automatic IRAs, exclusions are narrower: under age 18 and employees with less than 3 months' service can be excluded. The rules start for plan years after December 31, 2027.
Which plans count as automatic
If enacted, the bill would define which employer savings vehicles qualify as an "automatic contribution plan or arrangement." This would include certain defined contribution plans, new automatic IRA arrangements, some 408(p) arrangements, and certain employer plans that already exist. To count, the plan must meet the bill's notice, eligibility, contribution, investment, fee, and lifetime-income rules. The rule would apply to plan years beginning after December 31, 2027.
Model notices and certified providers
If enacted, the Secretary would publish plain-language model notices and enrollment forms and run a website with standardized fee and investment information. Providers could be certified and listed on that site, and employers could pick only listed providers. Employers must also tell workers they can transfer balances without cost or penalty. The rule would apply to plan years beginning after December 31, 2027.
Penalties, caps, and PEO rules
If enacted, employers who fail to maintain or facilitate required automatic arrangements could face an excise tax of $10 per day for each affected employee, with that amount inflation-adjusted after 2028. The noncompliance period ends when corrected or after three months. The bill also sets exceptions, a $500,000 cap on unintentional failures in a taxable year, waivers for reasonable cause, and exemptions for very small, new, governmental, and church employers. The bill would also treat the PEO customer as the employer when a qualified service contract applies. The rule would apply to plan years beginning after December 31, 2027.
Federal preemption of state IRA rules
If enacted, federal law would override state laws that block or limit automatic IRA arrangements and would generally free employers from state or local requirements to run a state payroll-deduction savings program. The bill preserves State laws enacted before January 1, 2028 that require certain employers to facilitate State automatic-IRA programs. This change affects where and how employers can offer automatic IRAs.
New lifetime-income payout option
If enacted, many automatic plans would have to let participants take at least 50% of their vested balance as lifetime income. That requirement would not apply if the vested account balance is $200,000 or less at distribution. Treating the $200,000 exception would not by itself cause nondiscrimination test failure. The rule would apply to plan years beginning after December 31, 2027.
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Sponsors & CoSponsors
Sponsor
Rep. Neal, Richard E. [D-MA-1]
MA • D
Cosponsors
Rep. Davis, Danny K. [D-IL-7]
IL • D
Sponsored 1/8/2026
Rep. Sánchez, Linda T. [D-CA-38]
CA • D
Sponsored 1/8/2026
Roll Call Votes
No roll call votes available for this bill.
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