Obama’s Payroll Savings Plan, myRA, Is a Starter IRA With Pros and Cons
Kevin Costa’s cured-meats kitchen and restaurant in the Beechview neighborhood of Pittsburgh is taking off.
Patrons who feast on duck confit and other locally sourced fare at Crested Duck Charcuterie praise his chops as a chef. The shop will soon be supplying a leading grocery chain with dry-aged meats, and its downtown retail kiosk continues to do well.
Yet, after four years in business, the former Peace Corps volunteer has yet to offer his five part-time employees a savings plan. But a new employee-savings account announced Jan. 29 by President Obama at a steel mill just down the road has Costa thinking some sort of plan may be possible.
He’s now looking into the new myRA direct deposit plan, scheduled to launch at the end of 2014, after businesses sign up for a pilot program. “If it were beneficial to my employees, then I would obviously want them to know about it,” Costa says.
A Starter Kit for Savings
MyRA is designed for employees who are struggling to save. As President Obama signed the executive order creating the plan at U.S. Steel’s Irvin Plant, he touted its key features: No administrative fees, an opening contribution as low as $25, after-tax contributions as low as $5 per paycheck, and a guarantee that contributions will never lose value. In addition, employees can take the plan from job to job and roll it over into a private retirement plan. Companies will offer the plan to employees through payroll deduction and will not administer the plan or match employee contributions.
About half of all workers and 75 percent of part-time workers lack access to employer-sponsored retirement plans, the U.S. Treasury Department says. A spokesman describes myRA’s prototypical user as “someone who is looking for a simple, safe, and affordable way to start saving for retirement.” Once the program is up and running, he adds, the government hopes to expand it to the self-employed and to employers who don’t offer direct deposit.
Pros and Cons
In the Pittsburgh area, Steve Templeton, a certified financial planner, and Becky Rodgers, executive director of Neighbors in the Strip, a nonprofit, acknowledge the trade-offs that employees will face if they opt for a myRA.
Templeton is pleased that the new accounts may spur employees to save on a regular basis. But he worries that savers will not sock away as much as they need for retirement.
“If you’re setting it and forgetting it and you did a really small amount to begin with, then you’re probably not saving enough,” he says.
Templeton also has reservations about the no-penalty withdrawal feature, which could tempt some workers to borrow from their nest egg.
Rodgers, whose group directs economic-development activities in Pittsburgh’s historic market district, says her five-person nonprofit looked into using a Roth IRA several years ago, but didn’t like the fees and initial contribution level.
“If you go to a bank to do an IRA, they don’t have the flexibility where you can do smaller amounts,” she says. However, she notes, contributing to a myRA may not create the amount of savings that some employees might hope for.
The new plan ties savings to the same variable-rate interest that’s offered to federal employees in the Thrift Savings Plan Government Securities Investment Fund, which generated 1.89 percent last year. That return beats the recent national average of 0.23 percent for a one-year CD, according to Bankrate.com, but lags the S&P 500’s red-hot 2013 performance of 29.6 percent.
Once an employee amasses $15,000 in contributions to a myRA, the account must be rolled over into a private-sector fund, where workers may continue to make contributions into a wider variety of investment options.
The new plan allows employers like Kevin Costa at Crested Duck Charcuterie to institute a savings plan for the first time or to supplement an existing plan, Templeton notes. “This is going to be another option,” he says.
Business owners who are interested in learning more about myRA can visit the program’s website or call (800) 553-2663.
Official White House Photo by Pete Souza.
Neil Cotiaux is a business writer for Intuit and is passionate about solving small business problems.