Financial firms cool toward Obama's new savings tool

The U.S. financial industry, which for years has decried the poor state of Americans retirement savings for years, is giving President Obama’s proposal to allow more workers the ability to save for retirement a cautious reception.

Mr. Obama signed a memorandum today at a press event at a steel plant in West Mifflin, Pa., directing the U.S. Department of the Treasury to create "MyRA," which will provide retirement savings options to the millions of Americans that lack access to one. The savings accounts, which the president first mentioned during last night’s State of the Union address, would be offered through Roth IRA accounts and would be backed by the U.S. government.

 Baby Boomers and Generation Xers will need an additional $4.3 trillion for their golden years in addition to Social Security, savings and housing equity, according to the Employee Benefit Research Institute (EBRI).

EBRI and others are concerned about potential tax changes being considered by the Obama administration that might have an impact on retirement savings. The White House is pushing these starter retirement accounts as part of a broader push to address income inequality and to respond to what many say is a critically low savings rate among retirees. 

 “While we need to examine the details more closely, we support the concept of the MyRA -- to provide a simple, voluntary savings vehicle for those who want to save for retirement but do not have access to a retirement plan at work,” said Gregg Burrows, Principal Financial Group’s senior vice president for retirement and investor services, in an email. “We are concerned about the unintended consequences of reducing retirement tax incentives as suggested by the president last night. Those tax incentives benefit workers of all income levels and have been a strong incentive for employers to offer plans and employees to save in those plans.”

Chip Castille, BlackRock’s head of U.S. retirement, echoed these remarks and called on Obama to reduce regulatory burdens so that more companies can offer retirement plans. He said the government also needs to encourage younger workers, who stand to benefit from starting to save early for their golden years, to participate in these plans.

Under MyRa, investor holdings will be protected by the government, and contributions can be withdrawn tax-free at any time. Accounts can be started for an initial investment as low as $25, while contributions could be made for as little as $5. Households earning as much as $191,000 are eligible for MyRa and could save up to $15,000 for a maximum of 30 years, so it isn’t a final solution for people to save for retirement.

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