President Obama's 2010 budget envisions the future establishment of a system of automatic workplace pensions, on top of and clearly outside Social Security. Assuming the automatic workplace pension comes to fruition - and I think it will - all businesses must automatically enroll all employees in their retirement or savings plan.

The beginning salvo in this effort is a proposal to enroll all employees in their company's workplace pension, with a provision to opt out, and a mandate for employers without a retirement program to enroll their employees in a direct-deposit IRA account that is compatible with existing direct-deposit payroll systems. Combining universal enrollment with a direct-deposit IRA account is a mandated automatic IRA.

The need for a mandated automatic IRA is clear and compelling: About half the U.S. labor force (75 million workers) lacks access to an employer-sponsored retirement plan, and Americans on their own don't save enough for either retirement or financial emergencies. Given Social Security's skimpy payments, a decent retirement is a dream for many people who work in the private sector.

What the mandated automatic IRAs will mean for businesses can be gleaned from Congressional testimony by J. Mark Iwry and David C. John on "Pursuing Universal Retirement Security Through Automatic IRAs" before the Long-Term Growth and Debt Reduction Subcommittee of the Committee on Finance, United States Senate (June 29, 2006). Among the highlights from their testimony and other sources are details of the core features of a mandated automatic IRA, including:

* Companies without a retirement plan will have to offer, at a minimum, a 100%-enrollment automatic IRA with a withdrawal provision. Companies with fewer than 10 employees and ones that have been in business less than two years will be exempt.

* Employees choose how much and where to invest.

* A temporary tax credit to employers will offset any administrative costs of setting up the program.

* Default options are available for employers and employees who fail to select a specific automatic IRA. Options are a 3% default savings rate and a default investment option in safe securities like Treasury paper or money market mutual funds.

* A federally created web site will encourage employees to stay enrolled in their automatic IRA.

* The self-employed (or independent contractors) can contribute to an automatic IRA through various payment mechanisms.

Employers covered by the mandated automatic IRA can't make matching contributions (although the federal government might provide tax credits to low tax bracket individuals as incentive to save). In addition, employers covered by the mandated automatic IRA aren't subject to ERISA rules and regulations, don't need to set up employee retirement accounts and aren't responsible for determining employee eligibility to contribute to an IRA.

Moreover, employers doing payroll by hand would be exempt, and a federally created Web site would provide enrollment forms and procedures for employers.

Companies with a defined contribution plan or companies considering offering one might be tempted to switch to this mandated automatic IRA. But three features of the mandated automatic IRA will discourage this move:

1. The maximum permitted contributions to an IRA - $5,000 if you're under age 50, and $6,000 if you're age 50 or older - is less than what business owners (and decision-makers) can contribute to their company's 401(k).

2. The mandated automatic IRA tax credit is less than what businesses receive from adopting a new retirement plan.

3. Matching isn't allowed under the mandated automatic IRA. Companies that want to match will have to adopt a 401(k) or some other retirement plan.

It's hard to see how companies that offer a retirement plan are either helped or harmed by a mandated automatic IRA. Over time, because this IRA program is much easier to administer than a traditional 401(k), it might prove tempting for companies that offer a 401(k) to switch to it. Libertarians will complain that a mandated automatic IRA represents another government burden on the back of businesses - which it could very well be for companies that don't offer a retirement benefit. Automatic enrollment will also impose payroll costs on a company's payroll system. But given the tangible benefits of making employees financially secure, the net result of the mandate might prove positive for business.