New Legislation Seeks to Create an Automatic IRA Mandate: What it Means for You  

Article written by the SBAM Policy Team for SBAM’s Lansing Watchdog newsletter

There is currently a package of bills moving through both chambers of the Michigan Legislature that would create a state-administered, automatic-enrollment Individual Retirement Account (IRA) program that would impose new requirements on employers in Michigan. 

In the State Senate, SB 807 and SB 808 would establish what’s known as an “auto-IRA” program for employers who do not already offer a qualifying retirement plan. Under this bill (which just passed committee last week) employers would be required to facilitate payroll deductions into a state-managed Roth IRA on behalf of their employees. A state-appointed board would oversee the program and contract with private financial institutions to administer the accounts. Employees would be automatically enrolled, and money would begin coming out of their paychecks unless they actively opt out.  

SBAM has expressed concern to the legislature about this proposal, and the identical bills that have been introduced in the House (HB 5335 and HB 5336) because they are mandates on employers. All employers who do not already offer a 401(k) or similar plan would be legally required to participate, and while proponents have argued that burden is small and that employers will only be tasked with processing deductions, the obligation is mandatory and the responsibility still falls on the employer. While we fully support financial responsibility and planning for the future, these bills do not create any new services that don’t already exist. Employees now have free and easy access to IRAs through a wide variety of brokerage firms. These bills exist only to shift the decision making from the individual to the employer, and mandate participation.  

The automatic opt-in mechanism in these bills also could create heartburn. The current language of the bill does not require employees to sign up for this program and are placed into it by default. If they do not actively opt out, they will begin seeing money leave their paycheck. For employers with a robust HR infrastructure this change may be manageable, but for many could create genuine surprises when employees notice and begin asking about their smaller paychecks. 

While supporters of this legislation may argue that the disruption caused by these bills is minimal in isolation – we know that small businesses don’t operate in isolation and that this new burden would be another in a long list. Each year, the list of HR and compliance requirements grows for small businesses – just in the least year we’ve seen implementation of the Earned Sick Time Act and increasing minimum wage requirements create massive headaches for small business owners. Each new requirement is just another item on a growing pile – SB 807 and SB 808 would add to that pile.  

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