12/01/2008 05:12 am ET Updated May 25, 2011

Don't Tell Joe: Obama and McCain Agree on Something

Don't tell Joe the Plumber, but John McCain and Barack Obama actually agree on something.

I stumbled across this startling information while looking into a proposal making the rounds in Washington aimed at creating new retirement saving options for lower-income Americans.

Called the Automatic IRA, it could keep millions of Americans out of poverty in old age. It gets at one of the toughest challenges to retirement saving-the simple fact that half of the country's working population doesn't have access to a workplace retirement savings plan.

The Automatic IRA concept enjoys bi-partisan support. It proposes creation of a new retirement savings vehicle for the 75 million Americans who don't have access to 401(k) plans where they work. That's because they work for employers-mostly small businesses-that don't sponsor 401(k) plans, mainly due to the expense of administering and matching contributions.

A number of retirement policy experts believe the solution lies in creating a public-private IRA option for these workers-a defined contribution cousin to the Social Security system.

Several proposals are floating around but one of the most interesting is the Automatic IRA plan proposed by a group called the Retirement Security Project (RSP). It's a non-partisan organization whose principals include two of the nation's top experts on retirement policy-J. Mark Iwry of the (liberal) Brookings Institution and David C. John of the (conservative) Heritage Foundation.

Obama endorsed the Automatic IRA in the fall of 2007 and has had it posted on the issues section of his website ever since. McCain endorsed it earlier this month in the course of responding to a questionnaire from a group of business and trade groups focused on employee benefits -- even though it contains a dreaded government mandates.

McCain supports a mandate on business? It seems so. Here's how the Automatic IRA would work. Companies that are not willing to sponsor any retirement plan, have been in business for more than two years and have more than 10 employees would be mandated to offer a payroll-deduction saving option to their employees-no different from the way employers deduct for taxes. Employees would be enrolled automatically when they are hired, unless they chose to opt out.

All this would be fairly painless for employers. They wouldn't have to make matching contributions, or comply with the plan qualification and fiduciary standards required in employer-sponsored plans. The employer simply acts as a conduit, remitting the deducted pay to an IRA account.

Another Retirement Security Project proposal would complement the Automatic IRA by changing the current Savers Tax credit to make it refundable. The current credit offers a non-refundable credit up to $2,000 for lower- and moderate-income married couples for contributions to an employer plan or IRA. But that has value only if you have an income tax liability. The RSP plan would be refundable and added directly to the saver's retirement account, so it would help even those who owe no income tax.

The RSP proposals embrace a model of simplicity to encourage participation and positive investment outcomes; most experts point to the complexity of most retirement plans as a major barrier to saving.

The RSP Automatic IRA would put savers in a default investment, such as a lifecycle fund geared to the individual's expected retirement age, with two or three simple alternative investment options for those who decided to opt out. The automatic IRA would probably default savers into Roth IRAs rather than traditional IRAs, since most of the targeted savers are in low tax brackets.

Overall, Iwry and John estimate that 50 million families could benefit from the RSP proposals.

I've posted more detail about the Automatic IRA concept this week at