The United States needs a sleek new vehicle for workplace retirement saving — something that covers the millions of workers who do not have a 401(k) or traditional pension. But the White House last week rolled out a kid's bike with training wheels instead, otherwise known as the myRA.
The myRA is a nice start, but only if it leads to something bigger — much bigger, in fact.
One problem is that the accounts are not designed to generate meaningful retirement savings on their own because they cannot hold balances higher than $15,000.
As a starter account, the myRA functions as a federally sponsored Roth IRA. The accounts are open to workers with annual income up to $131,000 (single tax filers) or $193,000 (filing jointly). They are subject to the usual annual IRA contribution limits.
Some employers will offer their workers access, and take contributions through payroll deductions. Individuals can also sign up on their own. Accounts can be funded from a paycheck, bank account or a federal tax refund.
Like any Roth, the contributions come from post-tax money and contributed funds can be withdrawn without tax or penalty. Earnings can be withdrawn in certain situations before age 59½.
But unlike most IRAs, there are no fees or minimum contribution levels, and the principal is guaranteed by the Treasury — you cannot lose money.
Here is another difference between the myRA and garden variety Roth and traditional IRAs: There is only one investment option. MyRA accounts earn interest at the same variable rate paid on the Government Securities Fund offered to federal employees in the Thrift Savings Plan, where returns have barely kept up with inflation.So where is the powerful vehicle we need — or at least a racing bike?
One solution that could work is a national auto-IRA, which the Obama administration has been asking Congress to approve since 2010 — an idea that has faced opposition from Republicans because of its mandatory participation feature.
A similar program created in the United Kingdom in 2008 has already signed up 34,000 employers and 2.5 million workers, and it features mandatory employer matching contributions, with accounts invested in target-date funds. Some U.S. states are also trying their own solutions, particularly California and Illinois.
In the meantime, maybe myRA accounts will at least get people to make a start.
Mark Miller is a Reuters columnist.