Saving for Retirement-States Plan to Help Citizens Save

Governing ran a story in late May about certain states’ efforts to help their residents save for their retirements. States Search for Retirement Security Beyond Obama’s myRA.  Noting that the myRA program starts at the end of this year, the article examines the steps some states have taken now, including Connecticut which has established a retirement security board to “suggest ways to create a state-level public IRA plan that would be open to all private-sector workers and would contain such features as default enrollment, portability, default annuitization at retirement and low administrative costs.” 

The author of the article interviewed Teresa Ghilarducci, who holds the chair of the economics department at the New School for Social Research in New York. Professor Ghilarducci had testified before the U.S. Senate Finance committee about pensions and Social Security. Professor Ghilarducci described the potential impact on cities “people who will be old and in a chronic state of deprivation — with all the attendant dislocation that causes. Cities will suffer a decline in the stability of neighborhoods. Neighborhoods are rich when they have grandmothers who are stable and able to function.”  Professor Ghilarducci was complimentary of the use of task forces to develop solutions for states and noted that local and state governments have had a financial infrastructure for government employees contributions for a long time, so setting up a public retirement plan would not really be the local government’s first rodeo.

The interview concludes with Professor Ghilarducci’ s thoughts about the myRA program

MyRA doesn’t go very far. It’s not mandated and, when these accounts are small, they’re invested in a low-interest, low-risk government plan. When they’re bigger, the funds are dumped into the private sector, which serves the 401(k) industry but not the needs of workers to have professional management and an annuity at the end of their work life. By structure and by law, 401(k) and IRA plans are in short-term, liquid investments -— and investors pay a premium for that so that they can take money out of a 401(k) and IRA any time. But most people want their retirement money invested for the long term at higher rates. The goals and motives of savers in 401(k)s and IRAs are mismatched for the assets of a public retirement security account.

Additionally, the New America Foundation ran a story about myRA in May 2014: Solving the Retirement Puzzle: The Potential of myRAs to Build a Personal Safety Net.  The summary of this paper speaks in part to myRA

One recently announced effort – the Obama Administration’s myRA program – is designed to facilitate access to a savings vehicles for the mostly low- and middle-income Americans who miss out on current savings opportunities. As currently designed, the program is unlikely to have a significant impact at scale on the long-term prospects of this group of workers. But with certain adjustments and policy reforms, myRAs could facilitate the creation of personal safety nets that would both provide short-term financial stability and lay the foundation for a secure retirement. Short-term, flexible savings are a crucial but overlooked piece required to solve the retirement puzzle.

The pdf of this paper is available here.