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.