Problems with the President’s myRA Plan

The President’s myRA plan has some problems, says MarketWatch.

• The plan is intended to help those who lack a retirement plan — nearly 50 percent of American workers — save for the future.

• While all of the details are not entirely clear, the plans will be backed by a government-backed security similar to a savings bond.

• Those contributing to the accounts are guaranteed that the value will not decrease.

The accounts allow for contributions as low as $5 after an initial $25 contribution, funded by deductions from workers’ paychecks. The accounts would follow workers from job to job, and employers do not have to participate in the program. Congress would have to approve any proposal that requires employer participation.

But the myRA plan has some drawbacks:

• The plans use the same variable-interest-rate return that the Government Securities Investment Fund (G Fund) uses. Unfortunately, the G Fund returned only 1.47 percent last year. Inflation, however, was 2.08 percent, so those with G Funds actually saw a decline in purchasing power. If the myRA cannot produce returns above inflation, the plan is not a great savings tool.

• The plans are capped at $15,000, requiring savers who reach that ceiling to move to Roth IRAs, thus losing their government-protected investment guarantee.

• The plans actually incentivize using the myRA for immediate investment benefits, not long-term savings. Because the 1.47 percent payout returned by the G Fund is still better than most bank account returns, savers may simply use their myRAs as alternatives to savings accounts. The plans have no withdrawal penalties, and individuals may want to use it as an emergency fund that is government-insured.

With 80 percent of Americans living paycheck to paycheck, there is no guarantee that people will even begin using these plans to save.

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