Mark Iwry, a Visiting Scholar at the Wharton School and a nonresident Senior Fellow at the Brookings Institution, has also served as Senior Advisor to the Secretary of the Treasury and Deputy Assistant Secretary for Retirement and Health Policy. Previously he served as the Benefits Tax Counsel at Treasury, Research Professor at Georgetown University, partner in the law firm of Covington & Burling LLP, Of Counsel to the law firm of Sullivan & Cromwell LLP, and Principal of the nonpartisan Retirement Security Project.
Exactly four years ago, the US Treasury launched a new retirement saving vehicle, the “myRA”. Announced by President Obama in the State of the Union address, and widely supported in the financial industry and retirement policy community, the myRA (short for “my Retirement Account”) was a Treasury-provided Roth IRA invested in US savings bonds. The myRA was designed as a new component of a much broader long-term strategy (the “automatic IRA” proposal) to narrow the nation’s retirement coverage gap. And it could also function as a “starter account” to instill lifelong habits of saving in millions of Americans who lacked access to an employer plan and who had never saved before.
Less than 18 months after myRA’s launch, the Trump Administration decided to cancel it, citing high cost and low takeup. In fact, however, the real story behind the short life and sudden death of the myRA has yet to be told.
The US Retirement Plan Coverage Gap
That story begins with the retirement coverage gap. America’s private retirement system has accomplished a great deal: pensions, 401(k)s, and IRAs help tens of millions of working families accumulate meaningful retirement benefits, while providing $30 trillion of investment capital to fuel economic growth. Yet too many retirees still have only meager benefits, and one of three working families is left uncovered by private pensions.
The Automatic IRA Proposal
To address this coverage gap, in 2006 I developed a broad-based “automatic IRA” legislative proposal with my colleague David John. (At that time I was affiliated with the Brookings Institution and he with the Heritage Foundation.) Under our plan, most employers that did not offer pensions or 401(k)s would need to let their employees use the payroll system to save a portion of their pay in private-sector IRAs. Unless employees elected to opt out, they would be automatically enrolled in the auto IRA, with a set amount deducted from their paychecks which would then be invested in low-cost target date funds. Employers would receive a tax credit for participating plus an additional credit for each employee who contributes, but they would not make employer contributions and would not have to comply with ERISA or face any risk of ERISA fiduciary liability.
The auto IRA proposal — designed to potentially cover up to 30 to 40 million workers — enjoyed immediate bipartisan co-sponsorship in Congress. In 2008, the idea was endorsed by both Presidential candidates, Barack Obama and John McCain; once elected, President Obama continued to support it.
Genesis of the MyRA Proposal
In general, auto IRA contributions would be deposited in private-sector Roth IRAs with the default investment being a low-cost target date fund. But participating employers would have the option to instead send employees’ payroll contributions to Roth IRAs maintained at Treasury and invested in US savings bonds. This savings bond idea, which grew largely out of suggestions from the financial services industry, was first called “Retirement Bonds” or “R Bonds;” but it was later renamed “myRA” because the bonds would be held in IRA accounts. The financial industry viewed small balances in U.S. savings bonds as noncompetitive with their retirement investment products, and therefore they found the myRA idea to be nonthreatening.
My Treasury colleagues and I designed myRAs as a starter account for first-time savers unaccustomed to taking market risk: simple and liquid, with principal guaranteed (eliminating the risk of investment losses), zero fees, no minimum investments, and a value always equal to the owner’s contributions plus interest on the bond. Like other IRAs, the myRAs would have been tax-favored and portable, and their owners could roll them over into commercial IRAs and 401(k)s at any time. Also, to make doubly sure they would not compete with private-sector investments, we capped contributions to myRAs once their balance reached $15,000 per participant.
We pitched myRAs to Treasury and the White House as a versatile tool to support the broader auto IRA initiative along with other aspects of the private pension system, while also potentially serving as a stand-alone retirement saving vehicle. Meanwhile, though, prospects of auto IRA enactment dimmed amid the extreme partisanship in Congress, intensified by the party-line enactment of President Obama’s Affordable Care Act. Accordingly, I also turned to several state Treasurers and legislators, to explore the possibility of states adopting auto IRAs. The idea was to pilot auto IRAs in a few states to obtain proof of concept, and then to nudge Congress to enact federal legislation creating a uniform, nationwide auto IRA program.
The MyRA Is Launched
By the final year of the Obama Administration, and with support from AARP and others, this state-based auto IRA effort began to bear fruit. California, Oregon, and Illinois prepared to launch auto IRA programs and requested Treasury’s permission to use the myRA as their programs’ initial and ongoing “safe” investment. California also wanted myRA to be the state auto IRA’s only investment for an up-to-three-year transition period, until the state decided on a permanent default investment. These states pressed for – and received – assurances that Treasury intended to make myRAs available for up to hundreds of thousands of potential auto IRA participants in Oregon and Illinois, and up to an estimated 3 to 5 million people in California. Meanwhile, as Treasury geared up to provide myRAs to the state auto IRAs, it also began offering myRAs to individuals who might wish to sign up.
When the Trump Administration took office, however, it recognized that the myRA could be instrumental in assisting state auto IRA programs, a plan strongly supported by the Obama Administration. Being opposed to state auto IRAs, the Trump Administration then informed the states that myRAs would not be available to their programs after all. Shortly thereafter, it terminated the myRA, arguing that startup and annual operating costs were too high given the relatively small number of myRA accounts (30,000) opened to date.
The Administration’s announcement did not mention that future takeup rates were projected to be low because it had rejected states’ demands for millions of myRAs in the next one to three years. Nor did it acknowledge that myRAs were designed as long-term investments promoting lifelong saving patterns for millions of workers, and not simply a short-term experiment to be evaluated based on little more than one year’s take-up. Moreover, no mention was made of the potential role for the myRA in facilitating automatic rollovers, promoting saving of income tax refunds, holding benefits for missing participants, supporting a potential federal auto IRA program, or otherwise supporting and expanding our private pension system.
What Hope for the Future?
Given the substantial long-term benefits that myRAs (or R Bonds) could bring to the US retirement marketplace, it’s a good bet that we have not heard the last of these. By administrative action or legislation, they will be back – not as the only solution to the coverage gap, but in a valuable supporting role, working in tandem with other components of our private pension system to help make America into a nation of savers.
Views of our Guest Bloggers are theirs alone, and not of the Pension Research Council, the Wharton School, or the University of Pennsylvania.
