Last week during his State of the Union address, President
Obama rolled out a retirement program for people who are employed by companies
that don’t have retirement plans. It is,
at the very least, sounding better than the Affordable Care Act. The president didn’t say that if you like
your current retirement plan, you can keep it.
No, this idea seems a little more in touch with
reality. How much, however, is the
question.
At first glance it sounds okay. It’s a “special” IRA funded with payroll
deductions using after-tax dollars from employees, and thus does not add to
production costs. The money is invested
in a new type of government security that pays a variable interest rate. Employers will not be forced to participate. For now, anyway. If a company likes its lack of a qualified
retirement plan, it can keep what it doesn’t have.
Once a participant accumulates $15,000 in a MyRA, he or she
must transfer it to a standard Roth IRA.
(Right there is a potential source of massive confusion, just as with
most recent government programs. Did
Obama mean that you must periodically empty your MyRA every time it reaches
$15,000, or that, having accumulated $15,000 and transferred it to a Roth IRA,
you are ineligible for further participation in the program?)
Unlike some retirement plans and investment options, you can
open a MyRA for $25, and can make additional contributions as low as $5. Given a weekly paycheck, a minimal saver
could accumulate $285 the first year, and $260 every year after that. Given the minimal interest rate projected, a
minimal saver would reach the $15,000 limit in a little over half a century, so
perhaps the potential confusion we noted above really isn’t a worry.
At first glance, then, the MyRA sounds like a scheme
designed to sound good, but not to have any real effect on anybody, not even
the saver. A retirement accumulation of
$15,000 is a third of the annual median income in the U.S. It’s not clear what, if anything, this is
supposed to do.
