Two pieces of news provide a flicker of hope amid the doom and gloom.
By Linda Koco
In his State of the Union address last night, President Barack Obama proposed creation of a MyRA, a new savings bond for working Americans to use to start their own retirement savings.
“Today, most workers don't have a pension,” he said. “A Social Security check often isn't enough on its own. And while the stock market has doubled over the last five years, that doesn't help folks who don't have 401(k)s.”
“That's why, tomorrow, I will direct the Treasury to create a new way for working Americans to start their own retirement savings: MyRA.”
Retirement and insurance industry professionals were buzzing about the rumored retirement savings proposa l— what it might look like, and how it might impact other retirement savings initiatives. The White House had provided an early heads-up but without details.
A starter plan
According to a White House fact sheet, MyRA — which stands for “My Retirement Account — will be a “starter” retirement plan, available through employers. It “would be offered though a familiar Roth IRA account and, like savings bonds, would be backed by the U.S. government.” The President is using his executive authority to create the bond, it said.
Workers would not only be able to invest in Treasuries through workplace deductions, but they could also later move the assets into an individual retirement account (IRA), according to a statement from Cathy Weatherford, president and chief executive officer of Insured Retirement Institute.
“The president’s plan also calls for automatic enrollment in IRAs,” she noted.
Weatherford said IRI applauds Obama for highlighting retirement security in his address. “We look forward to learning more about President Obama’s plan for increasing retirement security and to working with the administration to promote retirement savings in America,” she said
The Treasury department website says it will post “more information on the program this week.”
Workers at smaller firms
Workers at smaller firms may benefit the most from such a plan. Many private sector providers do not offer retirement savings options tailored to smaller balance savers, the White House said.
Researchers have found that many smaller employers do not offer retirement plans at all. For instance, in a March 2013 report, the U.S. Bureau of Labor Statistics (BLS) said that, at smaller establishments, retirement benefits are available only to 49 percent of workers. By comparison, at medium and large establishments, 82 percent of workers in have access to retirement benefits.
But overall, 74 percent of full-time workers and 37 percent of part-time workers in private industry do have access to a retirement plan, BLS said.
Where plans do exist, participation has been increasing, “During the last couple of years, participation rates, deferral rates and company contributions have increased steadily, and are now equal to or higher than they were before the recession,” reported the Plan Sponsor Council of America last October.
The council’s most recent annual survey on plans found that 87.6 percent of eligible employees had a balance in their plan in 2012. It also found that participants are saving an average of 6.8 percent of pay (up from 6.4 percent in 2011, and 6.2 percent in 2010).
In 2011, U.S. employers sponsored over 510,000 401(k) plans covering more than 61 million workers with more than $3.1 trillion in plan assets, according to a Government Accountability Office report released last November.
Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda may be reached at email@example.com.
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