When the Treasury Department recently rolled out the myRA retirement savings program, considerable care was taken to explain that there is not a hidden agenda behind the initiative.
In a video statement announcing the roll out, Treasury Secretary Jack Lew underscored that myRA accounts are not intended to replace workplace savings plans, but rather are designed, in part, to initiate the habit of saving in workers that don’t have access to 401(k)s or pensions through their jobs.
Lew said the program was designed to be a “bridge to other savings products.”
One estimate puts the number of workers without access to a workplace retirement savings plan at 68 million. Research from the Government Accountability Office shows the problem is endemic within small businesses.
Only 14 percent of businesses with fewer than 100 employees offer retirement plans. About 42 million people are employed in businesses that size.
myRAs will give those small businesses the option of enrolling workers in the program. Those that do will not be sponsors of the plan, of course.
The program is billed as having no cost to employers and savers, though some coordination from employers will be required to market the option and to facilitate payroll deductions that are deferred to the savings accounts.
Workers will be able to enroll in myRAs with as little as $5.
The accounts have the same annual contribution limits as Roth and Traditional IRAs. All contributions will be invested in one vehicle—a newly issued U.S. Treasury Security that officials liken to the G Fund Securities available to federal workers through the Thrift Savings Plan.
That means contributions will be backed by the full faith and credit of the United States government. Savings can’t be lost.
To critics of the myRA program, it also means savings will be far too conservatively invested. The G Fund returned less than .25 percent in 2014, and 1.89 percent in 2013. Since April of 1987, the fund has yielded 5.54 percent, according to the Thrift Savings Plan website.
Once accounts accrue $15,000, they will be required to roll over to IRAs in the private sector, proof enough for most that myRAs are not part of a larger cabal hoping for a government takeover of the retirement industry.
Still, questions remain about the program’s design and utility.
BenefitsPro asked three plan providers for their take on myRAs and how they see the program as affecting the country’s retirement savings landscape.
Director of government relations, Ubiquity Retirement + Savings
Does the myRA program threaten private sector retirement plan providers?
No. It is known that more than half of all Americans do not have access to savings in the workplace. It is not possible that any one entity would absorb that business, not even the government. There is no reason why the private sector will not remain competitive. Secure retirement is imperative for a secure society; to support the myRA initiative is an easy lift. There is not any one product that will satisfy the demands of all savers.
Has the industry done a good enough job of meeting the country’s retirement needs?
I cannot speak on the industry as a whole. There is clearly a coverage gap that needs to be addressed; where the fault lies for that gap is up for debate.
There are products in existence within the private market that provide cost-effective solutions for small businesses and their employees. Whether or not those solutions are accessed by small business lies solely with the decision-maker of the business.
What Ubiquity has done is to take a look at why small businesses, provided the opportunity, do not offer retirement savings to their employees. Are there concerns about administrative burden? Are there concerns about liability? Is it cost? Is the language confusing to an already burdened employer?
We have taken steps to remove those obstacles so that the decision is simple and based on what makes sense, and is best, for the employees as well as the business.
Will myRA, and retirement initiatives at the state level, incentivize some sponsors to drop their plans?
No. The language contained within the legislation at the state level discourages abandonment of current plans by defining eligible employers as not having offered a retirement savings plan within the previous two years.
The savings timeframe, suitable risk, and investment options will be a factor when employees make the ultimate decision about where and how to save. In the meantime, products like a ROTH-IRA or MyRA offer a stepping-stone to create a lifelong behavior, and habit, of saving.
Do you expect myRAs to be widely adopted?
No. People with the ability will want a more aggressive plan, which will mean assumption of more risk for a higher rate of return.
Founder and CEO of ForUsAll, a plan provider for small businesses
Has industry done a good enough job getting retirement plans to small businesses?
Short answer? The industry has not done a good enough job analyzing the specific pains and needs of small business owners, and that is a solid blocker to getting retirement plans to small businesses.
The next question is why are small business owners not offering 401k plans to themselves or their employees? If it’s lack of fee transparency, then as an industry, let’s fix that.
If it’s clunky, dry communication making it hard for owners to feel in control of their decision and the options they’re weighing, then let’s make communication more relatable and anchored to real goals.
If it’s a misconception that employees won’t use a 401k plan and offering one is a waste of time and money, then let’s clear up that myth right now and adequately show that not only are employees participating at rates of over 70% when a 401k is offered, they are contributing at rates of +6%.
Then let’s walk away from general numbers like these and find the ones that are specific to employees that work at small businesses.
Are the current tax incentives for starting a plan significant enough?
The cost is certainly a barrier and friction, and more tax incentives may help. But, there is a diminishing return at this point with technology-driven, next-gen 401(k)s driving down cost, the market is responding accordingly.
The real barrier is the outdated notion that it is an expensive benefit with high overhead costs to administer.
Do small businesses really have an economic incentive to provide a 401k?
401(k) is fast-becoming a benefit that everyone expects at their workplace, at a “real company.” Competing for and winning talent in this job market is directly linked to a business’ ability to succeed.
Will myRA, and initiatives at the state level, present a threat to retirement plan providers and advisors?
There’s always a little bit of reshuffling when a new product enters the market so it’s possible some retirement plan providers and advisors will see a shift in their book of business.
But we all know the MyRA is a starter plan, meant to affect behavior. The government and anybody else in the industry by no means believes the MyRA was intended to be THE retirement planning solution for workers.
Will myRAs have the unintended consequence of disincentivizing small employers from starting a plan?
I actually think MyRAs will incentivize small employers to start a plan. We see a lot of customers believing they’re excluded from a 401(k) plan because it’s “not a good fit” for all of their employees.
These are often retailers, restaurants, and other businesses in the hospitality industry. Knowing that there are different options that can work with all employees makes small business owners look at offering retirement benefits more seriously.
Vice president and senior retirement plan specialist for CBIZ Retirement Plan Services
Has industry done a good enough job getting retirement plans to small businesses?
In the past there was a poor adoption rate for small businesses. But in the last 5 years retirement plan installation costs have dropped significantly to where a small business can afford to start a retirement plan.
Does government have a role to step in and fill the massive plan access gap if the private sector can’t?
If the private sector can’t do it then the government is the only entity that will fill the gap. Much like the Affordable Care Act, which was created to provide health insurance for uninsured people to procure coverage, the government has created myRAs as a way proclaimed by them as an affordable way to save for retirement for Americans who don’t have access to an employer-sponsored plan.
Much like any government-sponsored program, the question of whether it makes sense for taxpayer dollars to support a retirement program is debatable.
SIFMA has lent its support for myRAs. Treasury officials say they could even be boon for the private sector, because so many more (potentially) participants will have portable retirement accounts to bring to industry once the $15,000 cap is reached. Do you agree that this is a positive for RIAs and providers of IRAs?
Not really. Most RIA’s and wealth managers deal with clients with much larger account balances. It would be cost prohibitive for an RIA to manage a $15K Roth IRA account.
Are myRAs, and initiatives at the state level, a threat to retirement plan providers and advisors?
Not at all. Most advisors like dealing with larger clients. Since the MyRA program deals with small account balances there will be no threat to traditional retirement plan advisors.
Could myRAs incentivize some sponsors to drop existing plans?
Absolutely not. There are several drawbacks to myRA’s when compared to traditional retirement plans, namely their smaller contribution limits and limited investment option.
Do you expect wide adoption of MyRA plans?
I have very low expectations for the program.