myRA Goes National

“Tomorrow, I will direct the Treasury to create a new way for working Americans to start their own retirement savings: MyRA. It’s a new savings bond that encourages folks to build a nest egg.”

So said President Barack Obama in his 2014 State of the Union Speech. Yesterday, the Treasury Department followed through, announcing the national launch of myRA.

MyRA is a free, safe, simple and easily accessible savings option that is branded as retirement savings account, but in reality could help millions of Americans build needed emergency and retirement savings. That is a remarkable achievement, especially since the original design of myRA was basically guaranteed to be irrelevant, or a failure.

When President Obama first pitched myRA, he did so by acknowledging the pressing and unmet need for retirement savings. The President said:

“Today, most workers don’t have a pension. A Social Security check often isn’t enough on its own. And while the stock market has doubled over the last five years, that doesn’t help folks who don’t have 401ks.”

In other words, MyRA was born as an attempt to create a “starter retirement savings account” for folks who don’t have a 401(k) through their employer. But the problems with myRA’s original conception were obvious and fundamental. The program was tough to access, small-bore, and indistinguishable from existing products in the marketplace. To have a major impact, myRA needed to change (as I pointed out with several colleagues in Solving the Retirement Puzzle).

As originally conceived, myRA was only available to employees if their employer chose to offer them access to the plan and then the employee also chose to participate voluntarily. This needlessly complex arrangement would have badly limited the potential appeal of the program, in part by totally excluding the self-employed, contract workers, and those with irregular connections to the labor market.

In addition, as a “starter retirement savings account” myRAs have been capped at $15,000 before they need to be rolled over into a private sector Roth IRA. And in striving to offer a simple, risk-free investment, the Administration chose a fund made up of government-issued savings bonds as the only investment option (offering modest returns, such as 2.31 percent from 2009-2014). No financial advisor would recommend an account with those terms as a good place to save for retirement.

Finally, the marketplace has no shortage of savings accounts, the retirement savings marketplace is a veritable alphabet soup of options, but just having options isn’t enough. Effectively half of adults have no retirement savings, 30 percent of American adults don’t have a simple savings account, and 55 percent of the country has less than one month’s income available as liquid savings. This lack of emergency savings deeply undermines retirement security, and makes workers more likely to take money out of their retirement accounts, if they have them. Is a “starter retirement savings account” what workers even need?

To their credit, over the past 18 months the Administration has patiently and quietly tested myRA, listened to critique and user feedback, and revised their plan. The program launched today is markedly different than the one first announced more than a year and a half ago and rather than failure or irrelevance, could now become a major source of savings for millions of Americans.

Rather than putting employers in a gatekeeper role, myRA is now open to essentially any American. Contributions to myRA can now be made through a direct deposit through an employer’s payroll system, but also directly from a checking or savings account. This seemingly trivial change opens the door for myRA to work for the self-employed, contract workers, part-time employees, those who change jobs frequently, a major segment of the workforce that happens to be badly in need of good savings options. Treasury also announced that Americans can now deposit all or part of their tax refunds into their myRA when they file their taxes.

So how will this new myRA fare?

The Administration still seems bent on pitching myRA as a “starter retirement account”, but the real concern for many low- and moderate-income Americans is their access to emergency savings. In fact, consumer research by the Doorways to Dreams Fund shows clearly that potential customers are evenly split on whether they would use myRA as a retirement account or as an emergency savings vehicle. This is where myRA has it’s real promise. Since myRA is a Roth IRA, individuals can withdraw their contributions at any time with no fee or penalty. This allows myRA to act not just as a “starter retirement account” but as a savings firewall that can protect a worker’s 401(k) or other assets. Treasury needs to promote this versatility more aggressively, as it is one of myRA’s best features and especially appealing to low- and moderate moderate-income consumers.

While work remains to be done (we still have more suggestions), by breaking down barriers to access, opening the doors to the self-employed and connecting the accounts to major institutional mechanisms like tax filing, the Administration is building an account that is aligned with the real needs and desires of millions of Americans.