President Obama announced in his State of the Union address that he would be ordering the Department of the Treasury to create the “myRA” (short for “my retirement account”), and signed a presidential memorandum to that effect last week. Employers will not be required to administer or contribute to myRAs, and, as a result, it is expected that there will be little to no cost for the employers that offer them. It is anticipated that myRAs will begin to be offered by employers who participate in a pilot program by the end of 2014.
The myRA is described in the Fact Sheet issued by the White House as a “starter” retirement savings account that will allow employees to begin saving modest amounts via payroll deductions in an account with features similar to a Roth IRA – without the hassles (and fees) associated with setting up a private sector retirement savings account. It is estimated that nearly half of American employees do not have access to retirement plans sponsored by their employers. While the myRA is targeted at these employees, if offered by the employer, it will be available to all individual employees with an annual income of less than $129,000 per year, and couples with household incomes of up to $191,000 per year. Individuals may initially invest as little as $25, and contributions made via payroll deductions could be as low as $5 per paycheck. Contributions will be made on an after-tax basis and may be withdrawn at any time without tax. Participants will have the ability to keep their accounts when changing jobs. Participants will also have the option to roll their account balance into a private retirement account at any time; but, it will automatically be transferred to a private Roth IRA if the balance reaches $15,000.
According to the Fact Sheet issued by the U.S. Department of the Treasury, myRA account balances cannot decrease in value, and, similar to savings bonds, the accounts will be backed by the federal government. In exchange for the myRA’s security, participants should not expect large returns on their investments. The funds deposited in a myRA will earn interest at the same rate as the Thrift Savings Plan’s Government Securities Investment Fund – which was about 1.5% in 2012.
Best Best & Krieger’s Employee Benefits group will continue to track the myRA program as it develops, and will issue legal alerts as additional information is released. If you have any questions about the myRA, please contact one of the attorney authors of this legal alert listed at right in the firm’s Employee Benefits group, or your BB&K attorney.
Disclaimer: BB&K legal alerts are not intended as legal advice. Additional facts or future developments may affect subjects contained herein. Seek the advice of an attorney before acting or relying upon any information in this communiqué.