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Treasury retirement plans could assist Californians without employer-sponsored savings

A recent study shows nearly half of California workers don’t have a retirement savings plan available at work, and the U.S. Treasury Department is hoping a new no fee, no minimum deposit retirement saving program will fill the gap.

Treasury Secretary Jack Lew met with reporters Friday to highlight the Department’s myRAprogram, which President Obama unveiled in 2014. Implementation of the program began in late 2015.

“We want to get people started, because the earlier people start saving, the more they will put aside, the more prepared they’ll be,” Lew said.

The plans are designed so that people can contribute whatever amount they can afford each month and can get the money back at any time without a fee or penalty.

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The accounts are capped at $15,000 and are backed by the Treasury Department.

“There’s no minimum balance, there’s no minimum deposit,” he said. “You can do $5 a pay period. You can do it in a number that suits your ability to take money and put it aside.”

Contributions can be made through direct deposit from a paycheck or a banking account. Lew said the department is emphasizing the program in hopes that people will use some of their tax returns to begin saving for retirement.

The interest earned on money in a myRA account can be taxed when money is withdrawn, but the principal is not.

Lew stressed that the program isn’t a replacement for an employer-backed retirement account, private investments or IRA accounts.

“It’s really not meant in any way to compete with commercial retirement products,” Lew said. “It’s really designed for people who don’t have access at the workplace and are too small to really fit into the current marketplace. We hope that people graduate out of myRA.”

Since the myRA program began late last year, about 10,000 people have signed up, with a median monthly contribution of $50, myRA Executive Director Richard Ludlow said.

The department expected the bulk of participants to be young, Ludlow said, but those signing up have ranged from those just entering the workforce to people who are approaching retirement.

“A lot of people are trying to play catch up,” Ludlow said.

Just 51% of Californians have access to a retirement saving plan through their employer, according to a January 2016 Pew Trust report. Of those who do have a savings plan available, 86% participate, according to the report.

The report found that nationally just 59% of workers have access to a retirement savings plan at work.

Only Florida, Nevada, New Mexico and Texas have lower rates of access to retirement savings plans through employers than California. Arizona, Florida, Nevada, New Mexico and Texas have lower rates of participation in available plans than California. (Louisiana and California have the same participation rate.) 

Within California, the Los Angeles-Long Beach-Santa Ana area has an access rate of 45%; in Bakersfield and the Oxnard-Thousand Oaks-Ventura areas the rate is 48%; Fresno is 52%; the Sacramento-Arden-Arcade-Roseville area is 56% and the San Jose-Sunnyvale-Santa Clara area has an access rate of 66%.

A 2012 California law proposed by now-Senate President Pro Tem Kevin de León created the California Secure Choice Retirement Savings Program. The program would have automatically enrolled eligible workers who would have had about 3% of their wages withheld for contributions unless they opted out, but the initiative has hit federal regulatory barriers. The U.S. Labor Department approved new regulations in January at Obama's urging that would allow the Secure Choice program and similar proposals in other states to move forward.

The Treasury Department backs a similar national retirement savings program where employees would have to opt out of automatic paycheck withdrawals, but Congress hasn't considered the Automatic IRA Act sponsored by Rep. Richard Neal (D-Mass.), and Sen. Sheldon Whitehouse (D-R.I.)

Lew said Pew’s data drives home the urgency of the problem.

“Far too many Americans have not saved for their retirement and they’re not in a position, when they realize that they haven’t saved toward the beginning of their working life, to catch up,” Lew said.


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