Employers may not feel much of an administrative burden from the new “starter” retirement savings accounts announced Jan. 28 in President Barack Obama’s State of the Union address, but those opting to participate should be prepared for employees’ questions about the My Retirement Account or “myRA” program ahead of its launch late this year.
While primarily aimed at helping employees, mostly at small companies, who don’t have access to a workplace retirement plan save for the future, some observers also see the federal savings-bond investment option as a good for employers that offer a retirement plan that does not cover all their employees.
“For example, the MyRA program may be offered to temporary, seasonal, part-time, or student workers who do not otherwise meet participation requirements in an employer’s traditional retirement plan,” said law firm Winston & Strawn in a Jan. 30 Benefits Blast client bulletin.
The federal government will offer tax incentives for employers participating in a pilot program offering the savings plan deductions by the end of 2014, according to U.S. Treasury Department fact sheet released Jan. 30. Obama will propose that the plan become mandatory among employers without their own retirement plans when he submits his budget proposal to Congress later this year.
Employers will not be allowed to contribute toward a MyRA, as they can with 401(k) plans, and their role in the program will be limited to distributing information and facilitating the payroll-deduction process for employees to make after-tax contributions. MyRAs will be available to individuals regardless of their eligibility for an employer-sponsored retirement plan, and the balances will be portable when changing jobs. The plan will be managed by a private investment firm, yet to be selected, and administered similarly to Roth individual retirement accounts.
Participation in the MyRA program initially will be limited to individuals with annual incomes of up to $129,000, and $191,000 for couples. Worker contributions will be invested in a single security, unlike most 401(k)s, and balances will be principal-protected, not subject to fees, and will earn variable interest at the same rate as the Government Securities Investment Fund in the Thrift Savings Plan for federal employees, which at the end of 2012 had a 1.47-percent annual rate of return, one that isn’t likely to beat inflation over time, as some critics have pointed out.
The MyRA program is not meant to substitute for employer-sponsored retirement plans. But “the program may help fill a void for employers that do not currently offer retirement plans,” the Winston & Strawn bulletin said. “Importantly, because employers will not administer or contribute to the MyRa program, fiduciary requirements are unlikely to be implicated.”
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