Treasury Terminates myRA and Congress Reverses Rules on State Sponsored Starter Savings Plans
The Trump Treasury and Republican Congress have eliminated or weakened two initiatives, a federal program and various State programs, created specially to provide starter savings options for any employee not covered by a private employer retirement plan. These plans charge no fees to employees or employers and employers do not assume any fiduciary responsibility for their employee’s participation. The main benefit for employees is accumulating their savings thru payroll deduction at their employer, the ability to automate their savings. Payroll deduction is the feature that behavioral finance tells us removes a major impediment – inertia – for an individual to begin and develop a saving habit, encouraging them to more fully participate in our free enterprise society.
I wrote an article posted in December 2015 titled, “Let All Save”, in which I bemoaned comments by several retirement industry professionals that federal and State sponsored savings programs would take business away from for profit firms. The Treasury just did away with the myRA program for cost cutting reasons and Congress took away the State’s exemption from ERISA, causing several states to pause their programs. Other states are still moving forward with their plans including California, Illinois and Oregon.
The myRA and State plans are designed for low and middle income tax paying Americans that work at one of the 96% of US companies that employ fifty or fewer employees that don’t sponsor a retirement plan. This segment of employer size has the most failures, employee turnover and the lowest percentage with a company retirement plan. This is also the employer segment where most employees are low and middle income tax paying Americans. 58% of those Americans with the lowest 10% of income have access to a private employer retirement plan according to a March 2017 Bureau of Labor Statistics report. myRA and State programs are for the 42% of the lowest paid and other middle income tax paying Americans not covered by an employer plan.
There will always be employers that chose to never sponsor a retirement plan at their company, and most employers have to believe they will have an ongoing enterprise before they offer a retirement plan. That could be ten years or more. All the while employing low and middle income tax paying Americans that need to save automatically from their first day of employment.
We should be improving and encouraging participation in employer based payroll deduct savings programs, even any federal or State program we don’t get paid on. Without alternatives, the elimination and dismantling of these starter savings plans make no sense and opposes a core way we grow our economy, promoting the ability of the individual to accumulate capital for future investment. These voluntary federal and State sponsored programs incubate future clients for Advisors. Even the myRA program mandated that once a participant’s account balance reached $15,000, it had to be transferred to a private sector financial services firm that could involve an Advisor. As investors account balances grow so does their belief that they need the assistance of an Advisor. Let’s give the lowest income employees the opportunity to more fully participate in the American dream.
August 2nd, 2017