Obama Touts New Retirement Savings Plan
Accompanied by his Treasury secretary, President Obama flew to Pittsburgh Wednesday to unveil a new retirement savings vehicle for workers, and at the same time encouraged Congress to take up related legislation.
Expanding on his State of the Union speech, the president said he wants “MyRAs” (an acronym for “my retirement account”) to launch by Dec. 31, and start with a pilot program administered by a private-sector company not yet selected, according to senior administration officials.
Americans have become better savers since the financial meltdown of 2008, but half of all workers have no retirement savings program through their jobs, and three-quarters of part-time workers are not putting money aside for their senior years, according to administration data.
Employees who aren’t offered pensions or employer-sponsored 401(k) plans through their workplaces will be able to sign up for payroll deductions saved in new “starter” Roth IRA accounts, which would be backed by the government and geared to small-dollar savers, Obama said.
“This is the opportunity agenda that's going to help restore some sense of economic security in this 21st century economy,” the president told an audience of workers at a U.S. Steel plant in West Mifflin, Pa., who have generous benefits.
“Today, most workers don't have a pension in America,” he added. “Just half work for an employer that offers any kind of a retirement plan. A Social Security check is critical, but oftentimes, that monthly check, that's not enough. And while the stock market has doubled over the last five years, that doesn't help somebody if you don't have a 401(k).”
Obama’s instructions to Treasury Secretary Jack Lew -- part of an executive memo he signed with a flourish and handed to his former White House chief of staff -- will lead to a new product, which could hold qualifying employees’ savings in fail-safe government securities for 30 years, or to a maturity investment of $15,000.
The voluntary, no-fee accounts won’t lose their deposited value, and tax-free withdrawals will be permitted for retirement or other needs. Employees who change jobs can hold onto their accounts, and even workers who already have IRAs can invest in the new Roth IRA accounts. Families with annual incomes up to $191,000 could qualify for the new product when launched by next year.
Workers, especially those who aren’t accustomed to putting any money aside for retirement, could open accounts with as little as $25 and add to their nest eggs in increments as small as $5 through payroll deduction. When the account reaches $15,000, they could use the money or roll the MyRA savings into any private-sector individual retirement account of their choice.
The government plans to “absorb the cost” of contracting with a competitively selected firm that has experience with retirement savings and can interact with what the government hopes will be millions of new micro-savers. Officials said they had no reliable estimate of the number of workers who may elect to participate. And while the Treasury Department has a pretty good idea what it will cost the government to back MyRAs, officials declined to offer figures while the government negotiates with private companies to administer the accounts.
Separately, Obama wants Congress to approve legislation that would permit “automatic” individual retirement accounts, which could allow employers to automatically enroll their workers -- similar to the traditional experience with defined-benefit pension plans. Workers who don’t wish to participate would be free to opt out. Studies show that low-income savers don’t have the same tax-based incentives to save precious dollars for retirement, and they struggle with the inertia and indecision that accompanies the creation of a new savings vehicle and the required designation of funds.
Asking employees to opt in, studies show, becomes a disincentive to their participation. But automatically enrolling workers and then letting them opt out makes it far more likely they’ll set aside some of their earnings for their retirement needs.
Last year, Fidelity Investments reported that a surging stock market raised average 401(k) account balances to $84,300 in the third quarter, for an increase of 11 percent from $75,900 in 2012. Fidelity, the largest 401(k) provider in the United States, analyzed 12.6 million accounts.
Sixty-eight percent of U.S. households, or 82 million households, reported having employer-sponsored retirement plans, IRAs, or both in May 2012, according to Investment Company Institute data reported in 2013.