Auto-IRA Initiatives Can Help Savers, But They Have A Political Problem

Aug. 08--The U.S. retirement system works pretty well for folks whose employer offers a 401(k) or pension plan.

The problem is, around 40 percent of workers have no such plan. They work for a small business, or they work part time and aren't eligible for benefits, or they work in the gig economy and essentially are their own employer. They could open Individual Retirement Accounts, but most people don't save unless the money automatically comes out of their paychecks.

There's been a movement to offer more workers a convenient, automatic savings option, but the federal government's modest experiment in that direction, called myRA, came to an abrupt end last month. A few states are trying to help their workers plug the retirement savings gap, but they're getting pushback from Congress and President Donald Trump's administration.

MyRA had attracted only $34 million in savings since it was launched by President Barack Obama in 2014. The Treasury spent $70 million to launch and run the program, so the cost-benefit ratio wasn't good. The concept was.

MyRA invested in ultra-safe Treasury bonds, charged no fees and was available by payroll deduction at participating employers. It wasn't meant to compete with the private sector: Once an account grew to $15,000, you were required to roll it into a Roth IRA.

Mark Muro, a senior fellow at the Brookings Institution, thinks myRA met a need. "There's a massive gap that will become more acute as the nature of our economy continues to transform," he said. "It really creates the need for some kind of portable, low-cost alternative to organized employer benefit programs."

Alicia Munnell, director of Boston College's Center for Retirement Research, believes that myRA wasn't given a chance to succeed. "It was not heavily marketed," she said. "It would have been a handy tool, and I view it as a big loss."

MyRA would have been useful, she said, as a starter account or safe investment option within states' auto-IRA programs. California and Oregon had planned to use it that way.

They're among five states, including Illinois, Connecticut and Maryland, that have passed legislation requiring all but the very smallest employers to offer a payroll-deduction retirement savings plan. The plans have been controversial: Small-business groups call them an unnecessary mandate, and the financial industry see them as unfair competition.

In May, Congress passed -- and Trump signed -- a resolution aimed at killing the state auto-IRA programs. It reversed an Obama-era regulation that exempted the plans from the 1974 Employee Retirement Income Security Act.

The states say they're going ahead anyway. A pilot version of OregonSaves began in July, and Illinois Treasurer Michael Frerichs hired Ascensus, a Pennsylvania company, to run the Secure Choice program, which he hopes to launch next year.

The legal status of the state plans will probably be determined in court, Munnell says. Meanwhile, we're left to ponder some odd political thinking.

Conservative Republicans in Congress generally portray themselves as favoring states' rights, yet they're trying to block a state initiative. And the financial industry may be shortchanging itself by fighting a pro-savings program.

The workers the states are trying to help are saving little or nothing now, so they're unlikely to do business with the Fidelitys or Merrill Lynches of the world. Give those workers a few years to accumulate assets in a workplace-based plan, though, and they could become prize prospects for those same firms.

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