Obama's myRA Proposal Needs Flexibility
Blog Post
June 3, 2014
Editor's note: The following is an excerpt from an article published in The Hill on June 3, 2014. To read the full article, please click here.
In this year's State of the Union, President Obama announced his intention to create a new type of savings vehicle for workers who lack coverage through their employers — the myRA or "my Retirement Account." The motivation for the effort was easy enough to see. Changes to the retirement savings landscape over the last 30 years have left far too many workers financially underprepared for their golden years. Pensions have virtually disappeared, and the 401(k)-type plans that were intended to replace them have shifted risk and costs onto individual workers. Today, only about half the workforce is even participating in a plan, let alone saving enough. The reality is that with such poor coverage and low contributions, the transition to a 401(k)-dominated retirement system has become a failed social experiment, one that is exacerbating economic inequalities.
In response, the administration's myRA will have features designed to make it attractive to lower-income workers. The accounts require low initial deposits, facilitate automatic payroll deductions and will be portable so workers can keep their accounts when they switch jobs. What's more, the deposits won't go down in value because they are guaranteed — just like funds in the basic G Fund of the Thrift Savings Plan, which is offered to every federal employee. The MyRA will adopt the same rules and tax treatment as a Roth IRA, with the specific income-eligibility levels and contribution limits. The Roth rules also mean that account holders will be able to access their after-tax contributions at any time, making the funds available for short-term emergencies when needed. At no additional cost to the employer or employee, workers will be able to access a basic, risk-free mechanism for saving. According to Treasury Secretary Jack Lew, the basic idea of the myRA is to create a starter account for new savers focused on retirement.
Sounds like a good idea. But will it work? Or, more precisely, will it be attractive enough as a savings plan to get both employers and workers to participate?
To find out, read the complete article here.