President Obama picked a good venue to boost the “MyRA” retirement savings accounts he touted in last night’s State of the Union address. He spoke at a U.S. Steel plant in Pennsylvania, a state where the public pension system has a $47 billion shortfall and where workers would be right to worry about running out of money as they age.
Defined-benefit plans are disappearing—they covered 35 percent of Americans in the early 1990s and only 18 percent in 2011—and defined-contribution plans such as IRAs and 401(k)s haven’t made up the difference. Too few American workers have such accounts, and most of the ones who do don’t save enough. A survey last year by the Employee Benefits Research Institute found that only 13 percent of respondents are “very confident” they will be able to live comfortably in retirement.
That dismal picture helps explain the intense interest in MyRA since Obama introduced the idea last night. “It’s a new savings bond that encourages folks to build a nest egg,” Obama said. “MyRA guarantees a decent return with no risk of losing what you put in.” Administration officials fleshed out a few of the details for reporters: The accounts are intended for workers whose employers don’t offer 401(k) accounts, and they can be started with as little as $25; contributions after that can be as low as $5, withdrawn automatically from their paychecks; and earnings on the investments—U.S. government bonds—would be tax-free, like a Roth IRA.
MyRA plans would be subject to a $15,000 maximum balance, after which they will be converted without penalty into IRAs. Those amounts are small, but the idea is to get workers who currently save nothing into the system.
In West Mifflin, Pa., Obama talked up the new plan to steelworkers. “We’re calling it MyRA,” he said. “Not IRA; MyRA.” Expected to elaborate on the concept, he didn’t offer much in the way of new details, with one exception: The president said savers would be able to withdraw their contributions “in an emergency” without paying a penalty.
After speaking, Obama signed a presidential memorandum making the MyRA official and handed it to a bundled-up Treasury Secretary Jack Lew.