MyRA Post-Mortem: Treasury to Shut Down Retirement Savings Program

Few small employers chose to enroll workers in government-run accounts

By Stephen Miller, CEBS Aug 2, 2017
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The U.S. Department of the Treasury is ending its myRA small business retirement plan program—launched with much fanfare by the Obama administration with a pilot program in 2014 and fully implemented the following year—after a review that found the effort wasn't cost effective.

"The myRA program was created to help low- to middle-income earners start saving for retirement. Unfortunately, there has been very little demand for the program, and the cost to taxpayers cannot be justified by the assets in the program," U.S. Treasurer Jovita Carranza said in a July 28 announcement. U.S. taxpayers have paid nearly $70 million to manage the program since 2014, Carranza said.

Treasury data shows there are currently 20,000 myRA accounts with a median balance of $500, plus an additional 10,000 accounts with a zero balance. Overall, participants have contributed $34 million to their retirement accounts since the program began, the Washington Examiner reported.

MyRA account holders are being notified of the prgoram's end and how to move their myRA savings to a Roth IRA. Participants are encouraged to visit www.myRA.gov for additional information.

The program began with high hopes for promoting retirement savings. "Research shows that many Americans are not saving enough—if anything at all—for retirement; only about half have access to an employer-sponsored retirement plan," said Mary Miller, then Under Secretary for Domestic Finance at the Treasury, in November 2014. Employers making myRAs available to their employees could "underscore [their] commitment to [employees'] financial well-being by helping them take a meaningful first step toward preparing for retirement," she said.

Partisanship may have played a role in the demise of the myRA program. "The Obama administration didn't bother to get bipartisan buy-in [when creating the program], so the Republicans had no pride of authorship now," columnist Richard Eisenberg explained at Forbes.com.

Senate Finance Chairman Orrin Hatch, R-Utah, praised the Treasury Department for ending the program. In an Aug. 1 letter to Treasury Secretary Steven Mnuchin, Hatch wrote that "while perhaps well intended, the scheme has not been a net benefit to savers and American taxpayers, and was set up through executive overreach to sidestep the Congress." Hatch also argued that employers participating in the program were at risk of becoming a fiduciary under the Employee Retirement Income Security Act (ERISA).

Limited Savings Vehicle

Employers with no defined contribution retirement plan could participate in the myRA program, setting up accounts for their employees on the Treasury's myRA website. The accounts, which were funded exclusively through payroll deductions, had the same tax benefits as Roth individual retirement accounts (IRAs), meaning that contributions were made with post-tax dollars and withdrawals during retirement will not be taxed.

For 2017, individuals could contribute a total of up to $5,500 to all of their IRAs combined, a category that included the myRA. Those ages 50 and older could contribute an additional $1,000.

Worker eligibility income limits were adjusted annually for inflation. This year, the income caps were set at $131,000 for individuals or $193,000 for married couples filing jointly. The maximum amount a saver could keep in a myRA was $15,000, after which the account needed to be rolled over into a Roth IRA.

Perhaps the biggest drawback of myRAs was that the only available investment was an interest-bearing account backed by the U.S. Treasury, with a recent interest rate of just 2.25 percent.

"Retirement savers have options in the private sector that offer no account maintenance fees, no minimum balance, and safe investment opportunities," Carranza said.

[SHRM members-only toolkit: Designing and Administering Defined Contribution Retirement Plans]

Critics and Defenders

MyRAs, from the start, were both criticized and praised. "Any [myRA account holder] can do a Roth IRA with minimal fees. It is fully portable and will have much more appropriate investments than government bonds," said Pedro M. Silva, a financial advisor at Provo Financial Services Inc. in Shrewsbury, Mass., in a 2015 interview with online publication FiduciaryNews.com. "The idea of a 20- or 30-something investing 100 percent into government bonds, when suggested by an advisor, would be malpractice."

But William Birdthistle, a professor at the Chicago-Kent College of Law in Chicago and author of the book Empire of the Fund (Oxford University Press, 2016), a critical look at the financial services industry and IRAs, tweeted after the Treasury announcement:

State-Run Programs Loom

Earlier this year, Congress repealed Obama-administration Department of Labor rules that would have made it easier for states and localities to require small businesses without their own retirement plans to automatically enroll workers into a government-run savings program by providing these initiatives with a safe harbor from compliance with ERISA. Several states nevertheless have said they are still going forward with their plans.

"The elimination of the myRA program closes one avenue for individuals to save for retirement, but may spur additional demand for state or local government-run programs that require private businesses to automatically enroll workers—whether full-time, part-time, seasonal, temporary, etc.—not covered by a 401(k) or other employer-sponsored savings plan," said Allison Klausner, a principal in the Knowledge Resource Center and director of government relations at Conduent HR Services in New York City.

"Although the myRA program may not have been as effective as one would have hoped—at least not in terms of increasing the number of workers who save via an employment-based program—private employers may regret the loss of a federal government-run auto-IRA with a single set of rules, rather than being mandated to support a spate of state and local government-run programs that have varied, and often conflicting rules," she said.

 

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