By now, you may have heard about MyRA. The acronym, which President Barack Obama stumbled over in his State of the Union speech Tuesday night, stands for My Retirement Account.
Obama introduced the new plan like this: “MyRA guarantees a decent return with no risk of losing what you put in.” On Wednesday, the administration said it will launch a pilot program of the "new, simple, safe and affordable ‘starter’ retirement savings account” by the end of the year. Bloomberg’s Richard Rubin has the details here. The early verdict: MyRA is intriguing but limited.
"My concern is this just creates more confusion for people," says Michael Kitces, partner and director of planning research at Pinnacle Advisory Group. MyRA adds to an alphanumeric soup that includes 401(k) and 403(b) retirement plans; Roth, traditional and other varieties of IRA; defined-benefit pension plans; 529 college savings plans; and health savings accounts, or HSAs.
More important, MyRA seems a token response to a crisis. Low- and middle-income workers can already go online or stop by their local bank and open up an individual retirement account similar to a MyRA. (A non-MyRA IRA has higher fees but more investing options.) The vast majority either don’t bother or can't spare the cash.
Even if MyRA's sign-up process is seamless for employers and employees, many workers are likely to ignore the option. Automatically enrolling workers, which has had great success with 401(k) plans, might work but would require a change in the law. The president has tried to persuade Congress to enact such “automatic IRAs” for years. “People are not going to participate unless there’s auto-enrollment,” says Alicia Munnell, director of Boston College’s Center for Retirement Research. Even if many aspects of the MyRA proposal are “very clever,” she says, “it won’t be effective.”
All that said, an idea can be redundant, inadequate, confusing and absolutely necessary. Only half of the private workforce in the U.S. is covered by any kind of retirement plan, even an inadequate one. “It’s shocking we let this go on year after year and don’t fix it,” Munnell says.
So while MyRA wouldn't come close to solving the problems bedeviling the U.S. retirement system, it's a baby step in the right direction. At the very least, the conversation about MyRA reminds everyone that so many workers simply aren't saving anything for their later years. And that, in its own small way, could bring us a little closer to solving the retirement dilemma.