Bloomberg News Some investment advisers are skeptical about whether President Barack Obama's proposal to help low-income Americans build a retirement nest egg will work.
In his State of the Union address on Tuesday night, he proposed a so-called “myRA” retirement savings account that would invest in government bonds and be offered by employers through Roth individual retirement accounts.
The White House on Wednesday will direct the Treasury Department to start developing the mechanism. Workers could open the account with $25, make automatic contributions in amounts as small as $5 per month and carry it with them from job to job.
Enrollment would be voluntary, and tax-free withdrawals could be made at any time, according to senior administration officials who briefed reporters on Wednesday.
Once a myRA builds to $15,000, or after 30 years, it would have to be rolled over into a private-sector Roth IRA. A pilot program will begin with several employers by the end of the year.
"It's not going to go anywhere. It adds to the alphabet soup of all the different kinds of IRAs."George Papadopoulos, owner of an eponymous investment advisory firm.
Although encouraging more retirement savings is “noble,” the opt-in feature will undermine myRAs' effectiveness, said George Papadopoulos, owner of an eponymous investment advisory firm.
“People will procrastinate, and they won't sign up,” he said.
“It's not going to go anywhere. It adds to the alphabet soup of all the different kinds of IRAs,” Mr. Papadopoulos said.
It is ironic that Mr. Obama touted the growth of the stock market over the past five years just before introducing a retirement plan based on government bonds, said John Hauserman, president of RetirementQuest Wealth Management.
“'Silly' is the word that came to me when he presented it last night,” Mr. Hauserman said.
“It's not a good long-term portfolio prescription for the majority of people, particularly those who are low- and middle-income and need long-term growth,” he said. “He proposes a retirement plan that won't let people be in the stock market.”
But another financial adviser embraced the idea, praising it as a “starter plan” that gets people into a savings habit and allows them to transition to private-sector plans.
“Any time we can bring solutions to the middle market and below to help our consumers save and take on personal responsibility for retirement, we would be in favor of that,” said John Nichols, president of the Disability Resource Group and president of the National Association of ! Insurance and Financial Advisors.
In his speech, Mr. Obama also took a swipe at tax incentives for retirement savings contributions.
He encouraged Congress to “work with me to fix an upside-down tax code that gives big tax breaks to help the wealthy save but does little or nothing for middle-class Americans.”
That characterization drew the ire of Brian Graff, chief executive and executive director of the American Society of Pension Professionals and Actuaries. An ASPPA study last year showed that 80% of 401(k) plan participants make less than $100,000 annually and that households making more than $200,000 get just 17% of the tax benefits.
“The 401(k) is a Main Street savings plan,” Mr. Graff said.
“It's completely wrong to suggest they only benefit the wealthy,” he said. “It's just ridiculous.”
The ASPPA is conducting a lobbying effort called Save My 401(k) that has focused on generating congressional support. Now it also will target the White House.
Mr. Graff wants to change Mr. Obama's rhetoric, which he said could help put retirement savings tax deferrals in jeopardy.
“It's this sort of war on the wealthy or war on the successful that he can't seem to get away from,” Mr. Graff said. “Everyone in the whole country benefits when everyone saves.”
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