The real retirement problem has been shifting responsibility to individuals, not how the saving plans have been designed

One of the few concrete executive actions in the State of the Union address was President Obama’s plan to start MyRA. It is framed as a low cost government backed retirement saving bond/account. The more I learn about it the less sense it seems to make.

It is really not very different from what is currently available. From the limited details they have put out it appears the money will just be put in the equivalent of Treasury bonds. Of course people can already just buy Treasury bonds or put their money into a Roth IRA that buys bonds. You can already pursue these options in a way that avoids wasteful fees.

As best as I can tell the big advantage the program has is that “initial investments could be as low as $25 and contributions that are as low as $5 could be made through easy-to-use payroll deductions.” It would also cost employers almost nothing to enroll their employees. It would seem the main point is to make it easy to automatically have your employees put a little aside every week.

This is a small change but given human psychology it could have a noticeable impact. People are bad at planning ahead but are also unlikely to opt out of a program they are automatically enrolled it. Still the reason many lower income people aren’t safe is because they don’t have money to spare.

From Obama’s statements it seems his official goal is to try to force Congress to write a law for automatic IRA’s. That is what he really wants. Since Obama hasn’t gotten that yet he is creating MyRA to try to show a portable automatic saving system can work. It seems like more a proof of concept than a long term plan.

More cynical answers

There are also some more cynical interruptions about what the MyRA is really about. For starters, the design is a real gift to big fund managers because the program bizarrely requires you to roll over into a private Roth IRA once you hit $15,000. The cap makes no policy sense. People who are using the MyRA instead of traditional IRAs are likely to be individuals who are not the best at finance. They could become prime targets for unscrupulous funds once they hit their limit.

The MyRA also adds to the great risk-shifting taking place by continuing to promote “individual responsibility” instead of social insurance. Obama is not even making aspirational calls for an expansion of Social Security or private defined benefits plans. He is creating one individual savings plan while asking Congress to pass what he thinks would be a better individual savings proposal. Obama is only focused on marginally improving individual saving plans that politically prop up a bad idea which feeds a terrible trend. The real retirement problem in America has been shifting responsibility to individuals, not how the saving plans have been designed.

Image courtesy 401(K) 2013 under Creative Commons license