Thursday, April 24, 2014
By Richard Rubin
WASHINGTON — President Obama’s new retirement accounts lack the most popular features of 401(k) plans. They offer no matching contributions, no prospect for eye-popping returns and no track record of employer support.
Vice President Joe Biden, left, and House Speaker John Boehner of Ohio listen as President Barack Obama unveils his retirement plan during his State of the Union address Tuesday.
The Seattle Times
Obama’s plan also relies on low-income workers being willing to do something they often can’t: set aside money in savings when they have immediate needs.
As Obama took to the road to promote the accounts this week, investors, bankers and financial planners questioned whether the accounts would achieve what Obama wants: building a retirement safety net for millions of people who aren’t saving.
“It’s a step in the right direction,” said Robert Reynolds, the chief executive officer of Boston-based Putnam Investments, which has $150 billion in assets under management. “I really have a question about how effective it’s going to be, even though I like the concept.”
The MyRA program, which will open by the end of 2014, would let Americans open individual retirement accounts that invest in government bonds. They could start with as little as a $25 initial contribution and contribute $5 per pay period after that. The principal, funded with post-tax contributions, would be protected and could be withdrawn without penalties.
To White House officials, those are the selling points, along with a feature uncommon in long-term retirement planning: guaranteed return of principal, because the money will be invested in a government bond fund set up for that purpose.
The aim of the program, which is being implemented without approval from Congress, is to encourage millions of people to build savings that can supplement Social Security benefits.
Obama’s plan is a narrower version of a requirement that employers automatically enroll workers in IRAs. He has included that plan in his budget and Congress hasn’t advanced it.
“I don’t think anyone thinks this is going to magically turn us into a nation of savers,” said William Gale, director of the Retirement Security Project at the Brookings Institution in Washington. “But for a particular group it seems like it could be part of the solution.”
About 68 percent of U.S. workers had access to pensions or retirement savings plans as of March 2013, with 54 percent participating, according to the Bureau of Labor Statistics.
Senior administration officials briefing reporters Thursday didn’t estimate how many people would enroll in the plans. They said they hoped the program would be particularly attractive to women, part-time workers and members of minority groups without access to retirement accounts at work.
“For those of you who don’t have a 401(k) on the job, don’t have a pension on the job, don’t have a mechanism to start saving, especially young workers, you can get started now,” Obama said Wednesday at United States Steel near Pittsburgh.
For employees and employers, the so-called MyRA accounts would differ from more familiar 401(k) plans.
Workers would have only one investment option – a basket of government bonds like that available to federal workers through their retirement plans. The bonds have maturities between four and 30 years.
The G fund in the federal Thrift Savings Program returned 1.89 percent in 2013, enough to outpace the 1.5 percent increase in the Consumer Price Index. The Pacific Investment Management Co.’s Total Return Fund fell 1.9 percent in 2013.
The guaranteed return in the government program may make a difference for potential investors who are contributing as little as $5 per paycheck, said David Certner, legislative policy director for AARP, which represents older Americans.
“At those kinds of levels, diversification makes less of a difference,” he said. “Having a guaranteed, safe bond return at no cost, no fee, for a starter saver may be attractive to some people.”
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