Participants in the Obama-era myRA retirement plan found out via email last Friday that the program was shutting down, the New York Times reported. The Treasury Department-run program was aimed at people with no access to employer-based retirement plans. They were informed they’d be given the option to roll over the funds into a privately run Roth IRA (individual retirement account).
According to the Times, “about 20,000 accounts have been opened [since they became available at the end of 2015], with participants contributing a total of $34 million, according to the Treasury; the median account balance was $500. An additional 10,000 accounts whose owners have not contributed to them have been opened.”
Jovita Carranza, the United States treasurer, said in a statement to the Times that demand for the accounts was not high enough to justify the expense of running the program, which has cost $70 million since 2014, according to the Treasury. The department projected a cost of $10 million a year in the future. (The Times did not report on how Carranza came up with such figures.)
Instead of letting money managers pick investments from a range of stocks, bonds and other assets, which can lead to expensive fees, myRA savings only went into one asset: U.S. Treasury savings bonds. It was designed to be an onramp to retirement saving, especially for low-income households. There was no minimum deposit or fees. Contributions could be manually or automatically withdrawn. The maximum annual contribution was $5,500 a year, or $6,500 if age 50 or older.
There might have been more demand for the program as state and local governments ramped up their own publicly sponsored retirement plans. The myRA program could have also been used as a component of state- or municipal-sponsored retirement plans, and there had been some planning to do so, the Times reported:
The program “offers a really good solution,” said Tobias Read, state treasurer of Oregon, which is running a pilot of its retirement savings plan this month and had expected to use myRA as its “capital preservation” alternative. “Without it, we will be forced to look at other options, which frankly aren’t as good for that purpose.”
NYC Comptroller Scott Stringer has been pushing for a city-sponsored retirement plan too. At companies with fewer than 10 employees, nearly 90 percent don’t have access to an employer-sponsored retirement plan, the comptroller found. The myRA could have provided a safe, low-cost foundation for Stringer’s city-sponsored plan as well. Now, cities and states will have to look elsewhere.
By rolling over retirement savings to private money managers, the Trump Treasury Department would expose nascent retirement account holders to the kinds of fund managers who often charge expensive money management fees. The Securities and Exchange Commission, who regulates these money managers, recently levied fines of $13 million on Morgan Stanley and $97 million on Barclays Capital for overcharging clients.
Private money managers were destined to get their hands on myRA savings anyway — the account maximum value was $15,000, at which point it would be rolled over into a private sector retirement account. As another key measure, the Obama-era “Fiduciary Rule” is meant to curb high fees by requiring money managers to act in the best interest of their clients. That rule, after an early challenge from the Trump administration, went into effect this June.
But Trump continues to look for ways to claw back the Fiduciary Rule. In other words, at the same time that his administration is taking away a free, safe option to begin saving for retirement, it’s turning over $34 million in retirement savings to private money managers and trying to make it easier for those money managers to charge higher fees.
Oscar is editor of Next City. Before that, we was a contributing writer and Equitable Cities Fellow for Next City. Since 2011, Oscar has covered community development finance, community banking, impact investing, equitable and inclusive economies, affordable housing, fair housing and more for media outlets such as Shelterforce, B Magazine, Impact Alpha, and Fast Company.