Testimony by Mark Iwry, Senior Advisor to the Secretary and Deputy Assistant Secretary (Tax Policy) Retirement and Health Policy,
Chairman Brown, Ranking Member Toomey, and distinguished members of the subcommittee, thank you for the opportunity to appear before you today to discuss retirement savings for low- income Americans. We appreciate this subcommittee's interest in this topic, and applaud your highlighting retirement security issues at your recent hearing on
At that hearing, Mr. Chairman, you noted that "retirement security in America has traditionally been thought of as a three-legged stool, consisting of
The Administration and the
The risk of an insecure retirement is especially acute for women, minorities, and lower-income Americans. Women continue to be less prepared for retirement than men. White households have six times the wealth, including retirement savings, of African American or Hispanic households. And low-wage and part-time workers are only one third as likely as high-wage and full-time workers to participate in an employer-based retirement plan.
A number of factors are at work here. In addition to lack of access to employer-sponsored plans, those who are not currently saving may encounter minimum balance requirements and administrative- or investment-related expenses that make it difficult to sustain very small accounts. Also, many potential new savers may be hampered by concerns about investment risk and volatility, the challenge of making decisions regarding investment options and other financial choices, and the need to take initiative to establish an account.
The myRA Retirement Savings Initiative n1
In his State of the Union address on
Under the myRA program, workers looking to start saving will be able to purchase a specially-designed Treasury retirement savings bond held in a Roth IRA. The bond will have an add-on feature, meaning that additional contributions will increase the value of a single security, instead of requiring the purchase of multiple securities. The Roth IRA that holds the retirement savings bond will be subject to the same tax treatment and other rules applicable to all Roth IRAs. Accordingly, the myRA saving opportunity will be available to households who are eligible to contribute to Roth IRAs - those earning up to
Other key features of the myRA program, which Treasury intends to begin phasing in by the end of 2014, include the following:
. Starter Vehicle - Making It Easier to Begin Saving for Retirement. As noted, this new product will be targeted to those who lack access to a workplace retirement savings plan (usually the most effective way to save for retirement). Starting to save is only the first step toward a secure retirement, and Treasury and the Administration want to help more Americans save for their future. Initial investments could be as low as
. Incubator of Small Accounts. While obviously not nearly enough to fund a secure retirement,
. Available Through Payroll Deduction at the Workplace. During an initial phase, myRAs will be offered, only by payroll deduction, to employees of employers that choose to participate. Employees will sign up for myRA accounts online and will not be charged administrative or investment fees. The accounts will be easy for employers to offer, as employers will neither administer the accounts nor contribute to them. As is currently the case for Roth IRAs generally, the account owner - not the employer - is responsible for complying with limits on Roth IRA eligibility based on compensation as well as annual IRA contribution limits. As noted, myRA is intended to help working Americans who lack access to an employer-sponsored retirement plan. Employees who are eligible for employer-sponsored plans will continue to have many good reasons to participate in those plans rather than in myRAs. As a result, myRAs will complement, not compete with, employer-sponsored plans. Additional contribution channels, such as direct participation by the self-employed, will be explored over time, and could be added as feasible.
There is reason to expect that linking saving to an employment-based payroll deduction system could be an important step in boosting participation. For example, millions of employees bought U.S. savings bonds annually through Treasury's former payroll deposit savings bond program, which for decades allowed employees to buy savings bonds through workplace-based payroll deduction.
. Safe and Secure. As noted, the retirement savings security will be held in a familiar Roth IRA account and will constitute the only investment in the IRA. Savers will benefit from principal protection, because the value of the bond, and therefore the IRA account balance, will never decline. In addition, the security, like other U.S. savings bonds issued under 31 U.S.C. 3105, will be backed by the full faith and credit of
Savers will earn interest at the same variable interest rate as the federal employees'
. Roth IRA Tax Benefits. Because the IRA holding the bond will be a Roth IRA, the contributions an individual makes can be withdrawn tax free at any time. In addition, earnings that are withdrawn will be free from tax or early withdrawal penalty if they are withdrawn after age 59 1/2 (or on account of death, disability, or to pay certain home purchase expenses) following a five-year holding period in the Roth IRA.
. Portable Account with Voluntary Contributions. Savers will have the option of keeping the same account when they change jobs and can directly transfer or roll over the balance into a private-sector Roth IRA at any time. In addition, savers working for more than one participating employer at the same time will be able to contribute to the same account by payroll deduction from each employer.
. Eligible for Saver's Credit. Savers with income below certain levels - currently
. Promoting Financial Capability. The myRA initiative can complement financial education and counseling to help workers plan and save for their futures. As Treasury develops and implements myRAs, we will look for opportunities to use them to promote financial education and capability.
Continued Commitment to Automatic IRA Proposal
The Administration remains committed to its proposal for automatic IRAs and encourages
The Administration and the
We welcome the opportunity to work with the Committee to achieve these important objectives. Thank you, and I look forward to answering your questions.
n1 Significant portions of this written statement incorporate language from statements and other informational documents previously issued by the
n2 Proposed automatic IRA legislation provides for a Treasury retirement bond to serve as a kind of fallback destination to which employers could, if they wished, send employee salary reduction contributions (For example, some employers might prefer a retirement bond to avoid choosing among private sector IRA providers.) Treasury's experience in developing a new retirement savings bond under the myRA program will be useful in developing and implementing this kind of option under automatic IRA legislation. See Automatic IRA Act of 2013, H.R. 2035 (sponsored by Rep.
n3 Individuals and employers are invited to visit www.treasurydirect.gov/readysavegrow or call (800) 553-2663 for more information about myRAs.
Read this original document at: http://www.finance.senate.gov/imo/media/doc/2-26-2014%20SFC%20sc%20Social%20Security%20Iwry%20myRATestimony%20FINAL.pdf
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