(Bloomberg) — President Barack Obama is offering more Americans the chance to put away money for retirement through payroll deductions with a plan for new government-sponsored savings accounts.
The accounts, which Obama announced yesterday in a State of the Union address that concentrated on expanding economic opportunity, will be aimed at workers who don’t have access to a 401(k) plan, administration officials said.
The “MyRA” plans, similar to individual retirement accounts, will provide “a new way for working Americans to start their own retirement savings,” Obama said.
Under the proposal, workers could have part of their pay deducted for deposit into an account invested in U.S. government bonds that would be treated for tax purposes as a Roth individual retirement account, with future earnings tax-free. The accounts would be open to people with annual household income up to $191,000 whose employers choose to participate, according to a White House fact sheet.
Initial investments could be as low as $25 and payroll contributions as low as $5. The plans, set up through the Treasury Department, would have a maximum balance of $15,000, after which money would have to be rolled over into a private- sector Roth IRA, the fact sheet said.
Laurence D. Fink, chief executive officer of BlackRock Inc., the world’s largest asset manager, said in a statement yesterday that he’s “tremendously encouraged” by a proposal he said he hoped would “kick off a much-needed national conversation” on retirement security.
The officials, who briefed reporters on condition of anonymity before Obama’s nationally televised speech, projected that millions of Americans would take advantage of the savings accounts. Participation would be voluntary and principal contributions will be guaranteed under the plan.
The president can establish the savings program under existing executive authority without new legislation, the officials said. Obama will announce details of the proposal later today during a visit to Pennsylvania, according to the fact sheet.
“This isn’t earth-shattering stuff,” said Brian Graff, the chief executive officer of the American Society of Pension Professionals & Actuaries. “But it is a step in the right direction to get more people saving for retirement, which I would think is a bipartisan issue.”
“I don’t expect this to get a lot of pushback,” said Graff, who discussed the proposal in advance with Treasury officials. He said it draws on an existing program that permits workers to purchase U.S. savings bonds through payroll deductions and adds “a retirement twist.”
The proposal resembles an earlier Obama administration plan that would have required employers to offer an automatic IRA option to employees. That plan, which was included in Obama’s 2014 budget, would have cost the government an estimated $17.6 billion in foregone revenue over 10 years.
About 68 percent of U.S. workers had access to retirement benefits as of March 2013, with 54 percent participating, according to the Bureau of Labor Statistics.
The Investment Company Institute, a Washington-based trade group for the mutual-fund industry, welcomed the proposal as a complement to “existing vibrant and competitive private-sector retirementofferings,” according to a statement.
Linda Wolohan, a spokeswoman for Vanguard Group Inc., said in an e-mail yesterday that “although we don’t have the details yet, Vanguard is generally supportive of expanding savings opportunities for those not covered by a workplace retirement plan.”