The lesson from myRA: the retirement system is suffering from a lack of direction, not a lack of initiatives
The demise of the myRA program is just one symptom of a retirement system that could reasonably be said to be not merely in flux, but in turmoil. It’s hard to keep up.
Change wherever you look
The myRA program was an Obama-era effort to chip away at the retirement coverage gap, and to get some of the tens of millions of working Americans who are currently making no provision for retirement to start saving. But, in a press release announcing its winding down, Jovita Carranza, U.S. Treasurer, cited “very little demand for the program,” making the cost of running it disproportionate.
Evidence of upheaval in the retirement system exists wherever you look: a decline in the number of private sector employers offering defined benefit (DB) pensions and the transfer of risk to the insurance sector; defined contribution (DC) plans still adjusting to the role of primary – rather than supplemental – retirement saving vehicles, and distracted by a stream of lawsuits; a public sector system funding shortfall of – depending on whose numbers you believe – between $1 trillion and $5 trillion; a multi-employer system which has started to actually cut benefits, including those already in payment. The Social Security system must find a way to cope with a drop in the ratio of workers to retirees. All of this against a backdrop of fundamental change in the economy and growing income inequality.
Relatively little mainstream attention has been paid to retirement issues. Partly that’s because it’s a long-term question, and easy to kick the can. Mainly, it’s because mainstream attention is focused on healthcare, which is an order of magnitude more complex and pressing.
It may not be grabbing the headlines, but there are plenty of ideas floating around. How many people understand all of the ins and outs of 401(k)s, 403(b)s, IRAs, Roth IRAs, SIMPLE IRAs, SEPs, SARSEPs, QRPs, DB plans, money purchase plans, profit sharing plans, ESOPs and ELVEs?1
Although myRA may have been removed from that list, other options may be joining it as various state-run initiatives move forward, despite congressional actions that removed safe harbors that some of them had been hoping to lean on.
Lacking a clear direction
Holding back efforts to improve the system, however, is the partisan and fractious political environment. This has left us without a clear overall direction that everyone – politicians on both sides of the aisle, employers, financial services providers, unions, and the many other stakeholders – can work toward. Such an environment makes it hard to keep the bigger picture in sight, looking beyond narrow self-interest to the wider goal of a cost-effective structure fit for 21st century.
It’s left too many working Americans poorly-served. In the case of myRA, the Trump administration is rolling back an Obama administration initiative (which is hardly unusual,) – and the result is that the 30,000 or so people who signed up for myRA expecting to be invested in a fund that guarantees no loss of principal, while returning (as of August 2017) 2.25% and a net administrative expense ratio below 4 basis points, instead find themselves about to be rolled over into an IRA world that has been built around the needs of far larger accounts and won’t be able to offer that combination of features. That’s just one example of the shadow cast by the political backdrop on the savings of individuals.
It’s still worth exploring new ideas. Good initiatives can have a meaningful impact, even when they are pursued piecemeal against a partisan backdrop. But, right now, what the retirement system really needs is a clear sense of direction.