During the 2014 State of the Union address, President Obama announced a new savings initiative, appropriately titled ‘MyRA’. Created by executive order, the MyRA is a simple retirement savings account that will be available (after an initial pilot period) to many workers through their employers. This post explains the rationale behind the new initiative, how MyRA accounts work, and how they could help move thousands of working Oklahomans toward a more secure retirement.
We know that not enough Oklahoma workers are saving for retirement. More than a quarter of the state’s workers (and more than half of part-time hourly employees) don’t have access to a retirement plan through their employer, as shown in the chart below:
We also know that even among employees who have access to retirement plans through their job, not everyone participates. As a result of limited access and lackluster participation, just 37.7 percent of private wage and salary workers in Oklahoma were in an employment-based retirement plan in 2012, 40th least among the states. And retirement savers in Oklahoma set aside on average just 33 percent of the total amount they’ll need to live comfortably in their golden years.
The MyRA concept is akin to a 401(k), but it’s a simpler account. Deposits saved in myRA accounts are backed by the U.S. government, like a savings bond, and they’re not invested in stocks or other higher-risk securities. Workers don’t have to pay fees and their principal is protected. And while there’s no mechanism for an employer match, low income earners who save in MyRAs will be eligible for a savers’ tax credit of 10 percent to 50 percent of their contributions.
On the other hand, lower risk means lower reward, so MyRA accounts are sure to average markedly lower returns than a 401(k) retirement plan or other IRA investment accounts. Indeed, the MyRA is designed to provide a structured way to buy savings bonds, not to be an investment account like an IRA. Consumerist.com elaborates on some of the key distinguishing features of these new accounts:
Affordability/Accessibility: A MyRA can be opened with a $25 minimum deposit to start the account and future contributions can be as low as $5.
Portability: A MyRA, though opened through an employer, travels with the employee when she or he changes jobs.
No penalties: The money an individual saves in a MyRA can be withdrawn at any time–without an age or other requirement–without paying a penalty. Like a Roth IRA, withdrawals from a MyRA are also not considered taxable income.
While many of the fine print details of MyRAs are still up in the air, they’re poised to begin addressing the urgent savings needs of low wage workers. When offered a simple path, that includes incentives and doesn’t impose burdensome fees, low income earners can save for retirement. Given Oklahoma’s low enrollment and participation rates in retirement plans today, the implications of a financially insecure retired population are troubling. New innovations like MyRAs help shed light on the problem and move us towards a comprehensive solution.