Obamafs MyRA program seen as a modest first step to get people saving for retirement
By Michael A.
Fletcher, January 30, 2014 - Washington Post
President Obamafs plan to create retirement accounts for workers who do not
have that option on the job represents a tiny first step toward addressing the
increasingly urgent problem of Americans who do not save enough for old age, analysts say.
Obama signed an executive order Wednesday directing the Treasury Department
to create MyRA, a government-guaranteed savings account that pays minimal
interest rates and is aimed at the nearly half of American workers whose
employers do not offer retirement plans.
gThis is an important but modest step,h said Karen Friedman, executive vice
president of the Pension Rights Center, a nonprofit group that promotes
retirement security. gIt is a common-sense approach to making voluntary savings
easy and safe.h
Still, the plan marks sharply scaled-back White House ambitions for
bolstering retirement security for the growing number of working Americans at
risk of downward mobility when they leave the workforce.
In the past, the president has proposed to compel employers who do not offer
retirement plans to automatically enroll workers in individual retirement
accounts, unless the workers decline. Obama reiterated that call in his State of
the Union address Tuesday night. He has also previously asked lawmakers to
expand the Saverfs Credit, a special tax break to give low-income Americans an
additional incentive to save for retirement.
But in a Congress divided by Obamafs health-care law, the idea of another
employer mandate has gone nowhere. Meanwhile, his call for a more generous tax
break to help Americans save has run into a wall of opposition amid fears that
it would add to the nationfs budget deficit.
Concern about eroding retirement security is growing in Congress and in state
legislatures across the country. Sen. Tom Harkin (D-Iowa) has been working on a
new retirement plan that combines elements of traditional pensions — including
lifetime benefits and pooled, professional management — with the portability and
ease for employers of a 401(k). Harkinfs plan, which calls for the accounts to
be privately managed with oversight by the Labor Department, will be officially
unveiled Thursday but faces steep hurdles in Congress.
Meanwhile, about a half-dozen states, including California, are looking into
establishing retirement plans for those who lack coverage on the job.
In his speech Tuesday, Obama also took aim at tax breaks for 401 (k) accounts
that he said do more to subsidize retirement saving by upper-middle-class and
wealthy Americans than by those who are struggling. He urged Congress to gwork
with me to fix an upside-down tax code,h a line that triggered strong blowback
from retirement experts.
gIn reality, households making more than $200,000 only get 17 percent of the
tax benefits from 401(k) plans, while middle-income households enjoy the
majority of such tax benefits,h said Brian Graff, executive director of the
American Society of Pension Professionals & Actuaries.
Obama described MyRA as ga new savings bond that encourages
folks to build a nest egg.h Treasury Department officials said they plan to have
a pilot program in place by the end of the year. The MyRA accounts would be
structured like Roth IRAs, with interest earnings accruing tax-free, assuming
they are untouched until workers reach 591 /
2 years of age.
Employers would not be required to take part. But given that they would incur
no costs and only minor administrative hassles, Treasury Department officials
said they hoped millions of employers and workers would eventually sign on.
The fact that sign-up would be convenient, contributions would be automatic
through payroll deduction and the government would cover administrative fees
should make the program all the more attractive, they argued.
Others were not so sure.
gI do not see this program as filling any gap,h said Lance Roberts, chief
executive of STA Wealth Management, a Houston-based money manager. gIf you look
at all the options out there — IRAs, Roth IRAs, savings bonds — the reality is
that there are plenty of savings vehicles out there. Having vehicles to save
money is not the problem. The problem is having money to save.h
MyRA account holders would have to invest in a fund pegged to government
bonds, which recently were offering total returns of just 1.47 percent.
They could start saving with a $25 investment and add as little as $5 a month to
their accounts.
They could keep their account even as they changed jobs, unless the balance
reached $15,000, when the cash would have to be rolled over into a privately run
account. The money workers contribute to the accounts would be guaranteed by the
federal government.
Account holders would be able to make hardship withdrawals without facing
significant tax penalties. And while the plan is aimed at low-income people,
anyone in a household earning up to $191,000 a year is eligible to invest.
gThe plan has the advantage that it helps people who do not have the ability
right now to save easily through payroll deduction,h said David C. John, a
senior policy advisor at AARP who added that it steers people around financial
institutions that discourage investors with small accounts. gIt helps get people
into the habit of saving.h
But others said Obamafs new initiative is so modest that it does nothing to
address the larger problem of eroding retirement security for Americans.
gAt best, it is a distraction from the bigger issue of what we need to do to
shore up retirement,h said Monique Morrissey, an economist at the Economic
Policy Institute. gIt is a very, very modest tweak, and it is not likely to have
much of a substantive impact.h
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