What is this new MyRA? If you tuned into the SOTU Address, you heard President Obama briefly touched on this new form of retirement account he intends to rolled out. President Obama offered more Americans the chance to save for retirement through payroll deductions with a plan for new government-sponsored savings accounts. The reason for the new plan is to expand options and access for people in the workforce.
The “MyRA” accounts, similar to an individual retirement account, will provide “a new way for working Americans to start their own retirement savings,” Obama said in the text of the speech released by the White House.
Under the initiative, workers would be allowed to have a portion of their pay deducted for deposit into an account invested in U.S. government bonds that would be treated for tax purposes as an individual retirement account, administration officials said.
The accounts, set up through the Treasury Department, would have a maximum balance after which money would have to be rolled over into an IRA, the officials said. The officials project that millions of Americans will take advantage of the savings accounts. “This isn’t earth-shattering stuff,” said Brian Graff, the chief executive officer of the American Society of Pension Professionals & Actuaries. “But it is a step in the right direction to get more people saving for retirement, which I would think is a bipartisan issue.”
One of the biggest challenges for the U.S. retirement system is that many workers don’t have access to a pension or 401(k) plan through their employer, said Lisa Mensah, executive director of the initiative on financial security at the Aspen Institute.
“We have to get people in,” Mensah said. “You do need an automated way for people to get into the savings system.”
Small-business groups in the past have opposed such proposals because they say that setting up the required payroll deduction would be a cost for them. U.S. savings bonds designed for retirement accounts have been proposed in the past and termed R-bonds, said Don Fuerst, an actuary and senior pension fellow at the American Academy of Actuaries.
The securities are seen as a way to allow low-income workers to save for retirement, Fuerst said. They usually can’t contribute much at the start, making their balances expensive to administer and vulnerable to investment-management costs. Research has shown that middle- and moderate-income workers are likely to save for retirement when they can do so with a payroll deduction and are unlikely to do so when they don’t have that option. Among workers earning between $30,000 and $50,000 a year, 72 percent of those covered by an employer-sponsored payroll deduction retirement plan such as a 401(k) participate, while only 5 percent of those without such a plan set aside money through an individual retirement account, according to a 2010 analysis by the Employee Benefit Research Institute. Sources say participation in the Obama retirement savings program would be voluntary.