Few topics lit up Twitter during the State of the Union address like myRA -- President Obama's proposal for a beginner's retirement savings program aimed at getting more workers to start socking away for their golden years.
Although details are still emerging, the proposed program is targeting lower- and middle-income workers whose employers don't offer traditional 401(k)s or retirement plans.
"It's a new savings bond that encourages folks to build a nest egg," said Obama during Tuesday's address. "MyRA guarantees a decent return with no risk of losing what you put in."
Currently, more than half of U.S. workers and 75 percent of part-time employees lack access to an employer plan, according to the White House, and the personal savings rate among Americans has been declining for several decades.
Gary Brand, a local business consultant with Brand Ferland Advisors, said in the past workers had access to three streams of money for retirement: Social Security, investments and a pension. Nowadays, many rely solely on Social Security.
"Its purpose is to draw attention to many who lack adequate retirement funds," said Brand.
How it works
MyRA, short for "My Retirement Account," would work like a payroll-based Roth IRA, which allows workers to put in after-tax money, then withdraw those dollars tax-free in retirement.
Employees who are enrolled could start with an initial investment as low as $25 and contributions as little as $5 per paycheck, which would go toward purchasing government-backed Treasury bonds.
Participants can save up to $15,000, or for a maximum of 30 years, in their accounts before transferring their balance to a private Roth IRA.
"It's really geared toward the person who is at the entry-level position -- the young adult who's in their initial job and is scraping by," said Mark Allen, CEO of Minis & Co., a local financial services firm.
Allen said an advantage to this plan would be for smaller employers, those with only a few workers, who don't offer a plan because of the costs and administrative overhead typically associated with 401(k)s.
In this case, the government would foot the bill to administer and manage myRA and would not require any matching contributions from the employer.
"It's not a new thought, to try to find ways to get better retirement options for employees and to try to get employees to put more away," said Allen. "I think most employers try to encourage participation in retirement plans."
The real sticking point will be whether Congress would pass legislation to require employers to automatically enroll their employees in it. Right now, the program is only voluntary for employers who choose to participate in the pilot program.
Brand said he is skeptical such legislation could survive the current divided Congress and that the program would only make sense if new employees were enrolled at the same time they submit their W-4 paperwork. Otherwise, it would be no different than if their employees had signed up for an IRA or purchased Treasury bonds on their own.
"In my view, unless myRA was automatic, I don't see a benefit to it," said Brand. "You can already invest in a traditional IRA."
Safe, low-yield investment
The other drawback would be that Treasury bonds are lower-yielding investments. The White House says myRA savers will earn the same variable interest rate as the federal employees' Thrift Savings Plan Government Securities Investment Fund, or G-Fund. However, in 2012, the G-Fund's annual return rate was 1.47 percent, less than the rate of inflation.
Financial advisors say a younger person with a longer work horizon may wish to invest in a private Roth IRA through a big financial institution like Vanguard or Fidelity, which offer more diversified investments such as stocks and mutual funds.
MyRA may mean little investment choice, but for those without the money to pay the fees and minimums often required to open a private retirement account -- not to mention for those who lack the interest -- it may be a foot in the door.
"It could be a start. Of course, there's a lot of details to work out," said Brand.
The real challenge will be convincing the people this program is designed to forego their few extra dollars in favor of a retirement savings account.
"Trying to get people to save is a good thing," said Allen. "It looks to me, on its face, to be a good idea. Whether it can be implemented, your guess is as good as mine."
QUICK FACTS ON MYRA
--Like a Roth IRA, workers can put in after-tax dollars then withdraw the money tax-free in retirement.
--Unlike a regular IRA, myRA would protect the principal, so the account balance would never go down in value.
--Savers will earn interest at the same variable interest rate as the federal employees' Thrift Savings Plan Government Securities Investment Fund, or G-Fund.
--Plan would be available to any household earning up to $191,000 a year.
--Initial investments could be as low as $25 and contributions as little as $5.
--Portable account will follow worker from job to job or can be rolled over into a private-sector retirement account at any time.
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Original headline: Obama's myRA plan seeks to boost retirement savings
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