Following up on announcement made by President Barack Obama in his annual State of the Union speech on Tuesday, the White House released details of a new retirement savings account to be made available to employees through their employers. These accounts, myRAs (presumably an abbreviation for “my retirement account”), which are being established under the president’s executive authority, are described as “starter” savings accounts aimed at the 50% of employees who have no access to employer 401(k) plans (White House press release, “Fact Sheet: Opportunity for All: Securing a Dignified Retirement for All Americans,” 1/29/14).
MyRAs will be offered by employers through Roth-like IRA accounts (i.e., contributions will be made with after-tax dollars and distributions will be tax free), with the difference that the principal will be guaranteed, like U.S. savings bonds. According to the press release, individuals will be able to withdraw these amounts tax free at any time, although the implementing memorandum suggests that withdrawal may only be available in an emergency (Presidential Memorandum to the Secretary of the Treasury, “Retirement Savings Security,” 1/28/14).
To make it easier for low- and middle-income people to participate, myRAs will require an initial investment of as little as $25 and payroll deductions as low as $5. Participation will be voluntary, and employees are free to opt out. The accounts will earn interest at the same variable interest rate that applies to the Thrift Savings Plan Government Securities Investment Fund that exists for federal employees.
Employees who change jobs will be allowed to keep their myRAs or roll them into a private-sector retirement account. MyRAs would be available to households earning up to $191,000 a year ($129,000 a year for individuals). Participants’ total contributions will be capped at $15,000 and the accounts will last only up to 30 years. After reaching the total contribution limit or 30 years, participants will roll the accounts into a private-sector retirement account, such as a Roth IRA.
The president has directed Treasury within 90 days to begin developing a pilot project to make myRA accounts available and to finalize development by Dec. 31, 2014. The press release claims employers will incur little cost from participating in the program because they will not contribute to the accounts or administer them.
The president also plans to propose in his budget the establishment of IRAs funded through payroll deductions (auto-IRAs), for employees without access to a workplace savings plan. According to the press release, this plan could provide access to retirement savings to one-quarter of all workers. The program is designed to make it easier for employees to participate in saving for retirement by requiring small businesses that do not offer other retirement savings options to offer IRAs and automatically enroll employees unless they opt out. The president has made this proposal in past budgets, and, unlike the MyRA program, the auto-IRA proposal would require enactment by Congress
According to the White House, about 9 out of 10 employees whose employers offer 401(k) plans participate in them, whereas only 1 out of 10 employees without these plans invests in an individual retirement arrangement (IRA).
Sally P. Schreiber (
) is a JofA senior editor.