The
President introduced something called a “myRA” at the State of the Union
speech. He explained…
… while the stock market has doubled over the last five
years, that doesn’t help folks who don’t have 401(k) s. That’s why, tomorrow, I
will direct the Treasury to create a new way for working Americans to start
their own retirement savings: myRA. It’s a savings bond that encourages folks
to build a nest egg. myRA guarantees a decent return with no risk of losing
what you put in.”
The idea
here is to encourage small retirement savers. The concern is that routine bank
or investment fees (for example, the annual “maintenance” fee for an IRA) may
discourage some (or many) from saving for retirement. Under the myRA, the government
picks up that tab. The concept makes sense.
The myRA
would function as a Roth-type account. Monies going in would not be deductible
for income taxes.
Contributions
will be automatic, voluntary and small. Initial investments could be as low as
$25 and ongoing contributions as low as $5. Contributions would be made through
“automatic” payroll deductions.
COMMENT: “Automatic” meaning actual employers who pay people
in actual payroll department to process these transactions. Automatic seems to
mean “magical” inside the Washington beltway.
The myRA big
deal will be the savers account balance “will never go down.”
COMMENT: Somewhat like a savings account or certificate of
deposit. There are – by the way – no annual fees for those accounts either.
They are “magical.”
The myRA
will earn the same interest rate as the federal employees Thrift Savings Plan
Government Securities Investment Fund.
NOTE: Which returned 1.47% in 2012. Unfortunately, inflation
for 2012 was 1.8%. The G Plan pays investors the investor the average return on
long-term Treasury bonds.
It will be
available to households earning up to $191,000 annually.
Participants
will be able to save up to $15,000, or for a maximum of 30 years.
COMMENT: Remember: this is a “starter”
savings plan.
There would
be a provision to transfer the account to a Roth IRA.
COMMENT: That part makes sense, as these accounts can be
described as “Roth-lite.”
The
President created this by executive action this past Wednesday.
COMMENT: Really?
Reflecting
the crowd currently occupying it, this White House also wants to compel employers
that do not offer myRA’s to offer automatic enrollment IRAs.
OBSERVATION: Approximately half of American workers are not
covered by a retirement plan at work, propelling policy mandarins to talk about “mandatory”
solutions to the retirement “problem.” I acknowledge the problem - two problems,
in fact. First, that many people do not save enough. It might help if they had a job, though. Second, that these hacks and their “mandatory” solutions are themselves a problem.
Call me
completely underwhelmed.
