President Barack Obama unveiled a new retirement savings plan for Americans in his State of the Union address Jan. 28.
My Retirement Account, or MyRA, an “automatic IRA” program, will be created through executive order. The program is aimed at workers whose employers do not offer retirement plans.
“Tomorrow, I will direct the Treasury to create a new way for working Americans to start their own retirement savings: MyRA,” Obama said in his address. “It’s a new savings bond that encourages folks to build a nest egg. MyRA guarantees a decent return with no risk of losing what you put in.”
According to the Brookings Institute, its Retirement Security Project developed the idea. The project was led by William Gale, a senior Brookings fellow; J. Mark Iwry, senior adviser to the secretary of treasury; and David C. John, a policy adviser with AARP’s Public Policy Institute.
While the exact details of MyRA have not been released, the trio previously released papers and testimony on how the policy would work.
The automatic IRA would allow employees to use their payroll system to channel their own money into an IRA, according to a 2009 paper published by Iwry and John.
Employers would receive a small, temporary tax credit based on the number of employees who participated, the paper said. Only businesses with 10 or more employees would be eligible.
The paper offers several possibilities; in one, the automatic investments would consist of several different funds depending on the individual’s age. Older individuals would be invested in more conservative funds as they are closer to the time when they may use the money.
The experts’ hypothetical program considered investing in Treasury bonds and certificates of deposit. They also considered the possibility of giving individuals the choice of a lower- or higher-risk investment.
Many Americans do not save for retirement, according to Gale and John in a paper published by the AARP Public Policy Institute.
“Many American households do not save for retirement,” the paper said. “Those that do save often contribute too little, invest poorly, or withdraw funds early. These patterns threaten to leave many low- and middle-income households without enough savings to finance adequate retirement living standards.”