In his 2014 State of the Union address President Obama announced that that he will direct the Department of Treasury to create a new retirement savings plan for workers who do not have 401(k)s. Called My Retirement Account or MyRA, it will allow them to purchase savings bonds with guaranteed rates of interest through automatic payroll deductions. He introduced the program by enjoining, “let’s do more to help Americans save for retirement.”
Creation of the MyRAs is recognition of the growing retirement crisis facing Americans. But rather than delivering substantive relief, it is at best a token response and in doing so perpetuates the very myths and fallacies that caused the crisis.
The root of the crisis is that in 1981 corporations began substituting 401(k) savings plans that have no guaranteed retirement benefits for traditional pensions that delivered guaranteed payments to retirees for life. The conversions began with the false claim that individuals would obtain more lucrative retirement incomes by investing in these 401(k) accounts. But as retirees thirty years later discovered, quite the opposite occurred: 401(k)s produced dramatically less retirement incomes than the pensions they replaced. The only beneficiary was the financial services industry that siphoned off substantial administrative fees, commissions, hidden charges, and other forms of profits from the accounts.
“Today,” the President said, “most workers don’t have a pension.” He could have followed up that undeniable fact by stating that workers deserved a pension. But he didn’t.
Instead of recognizing that the 401(k) retirement plan experiment had gone terribly wrong, the president implied that the crisis only affected those without 401(k)s. “While the stock market has doubled over the last five years, that doesn’t help folks who don’t have 401(k)s.” The clear implication was that 401(k) plan participants had nothing to worry about. Unsaid was that the market doubled only because it had sunk so low with the 2008 crash.
MyRAs are aimed particularly at low-wage workers who have been unprofitable for the financial services industry to cover with its own 401(k) and IRA plans. The federal government would absorb the costs of administering the accounts. Then once the accounts built up enough accumulations to be profitable for private firms to manage, they could be converted into private IRAs. In essence tax payers would subsidize generating a new source of retirement savings for the financial services industry to gain control of.
The program will do little to benefit retirees. No one ever obtained retirement security with savings bonds. Once more, the financial services industry is likely to be the main beneficiary.
The need remains urgent for a comprehensive public program to address the retirement crisis. The President could have endorsed Senator Elizabeth Warren’s proposal to expand Social Security, which would have been a much more meaningful step in the right direction. But he didn’t.
Read more from James W. Russell on the Beacon Broadside:
James W. Russell is the author of Social Insecurity: 401(k)s and the Retirement Crisis. An authority on retirement policy in the United States, Europe, and Latin America, he led one of the first employee movements to successfully challenge the dominant trend and replace a 401(k)-like plan with a more secure traditional pension plan. He has taught at universities in the United States and as a Fulbright professor in Mexico and the Czech Republic. He lives in Storrs, Connecticut.