President Barack Obama directed the Treasury Department on Wednesday to create the “MyRA” retirement savings bond program mentioned in his State of the Union address Tuesday night to reach low- and middle-income workers and others not saving for retirement.
“This is a starter IRA,” said a senior administration official on a background press call.
Treasury officials said on the call that they will launch a pilot program by the end of 2014 with employers opting to participate. Employers would not administer or contribute to the accounts, and there would be “little to no cost” to them, administration officials said. The federal government will pay an agent selected through a competitive process to administer the program.
The savings account would be offered as a Roth individual retirement account managed by a third party for the federal government. The federal government would guarantee the principal as it does with savings bonds. The interest rate would be based on the Thrift Savings Plan's G Fund, which uses rates based on a four- to 30-year average maturity.
Households with income of up to $191,000 can open accounts with just $25 and make contributions of as little as $5 through payroll deductions. The MyRA accounts would also be portable among employers.
Contributions may be withdrawn tax-free at any time, and Treasury officials said they would not police that. Once an account reaches $15,000 or 30 years, the money would have to be rolled over into a private-sector Roth IRA. Balances may also be rolled over to a Roth IRA before the limit is reached.
“We currently have a system that is not doing what it is supposed to,” said a different senior administration official, who noted that 50% of all full-time workers and 75% of part-time workers are not saving for retirement. “The proposal today is very much pitched at bringing new people in and is based on economic research that what you need is something simple, safe, secure and easy to set up through an employer,” the official said.
Hazel Bradford writes for Pensions & Investments, a sister publication of Business Insurance.