Statistics show that roughly half of all workers, predominantly low earners, have yet to set aside a single retirement dollar. (Michael Osbun / Tribune Media Services)
On October 16, 2014, George Scorse writes in the Los Angeles Times:
President Obama’s legacy will probably not include retirement savings accounts, but he did point the way to a promising option this year: a government-sponsored account, aimed at the millions of workers without access to an employer plan. As with so much else in his presidency, it’s an example of high hopes trumped by mediocre execution.
The Obama creation does have some positives, starting with the clever name. It’s called myRA, shorthand for “my Retirement Account.” A lot snappier than 401(k) or 403(b).
Here’s what’s good about myRA, what’s not so good and how it could have been so much better — for retirees, for the Treasury, for the country.
Statistics show that roughly half of all workers, predominantly low earners, have yet to set aside a single retirement dollar. Turning those non-savers into savers is sound policy. Where employers make myRA available, workers will be able to open an account with a minimum deposit of $25 and automatic deductions as low as $5 per payday. All money will be invested in Treasury bonds. The accounts have no fees and guarantee total safety of principal and interest. MyRAs will close out after 30 years or at $15,000 (whichever comes first) and convert to private-sector holdings.
Now for the many shortcomings of an account the Treasury Department describes, correctly, as “simple, safe and affordable.”
The first problem is that guaranteed securities generate small returns, especially these days. Yields on Treasury paper have been sitting at or near historic lows ever since the financial meltdown. Of course, rates will eventually rise; so too will inflation, leaving real returns more or less permanently negligible.
MyRAs, scheduled to roll out by the end of 2014, could have been far more rewarding. Contributions could have gone into an index fund, tied to a broad market measure like the Standard & Poor’s 500 or the total market. The risk could have been neutralized by guaranteeing both the principal and an inflation-matching return. Such a guarantee might never have to be invoked, and it wouldn’t cost that much even if it were. The accounts are geared to small savers, and that keeps any downside small as well.
Contributions to myRAs could have been in pretax dollars, as with 401(k)s, regular IRAs and other retirement plans. Instead, myRAs were set up as Roth accounts and require contributions in post-tax dollars. This appears to raise federal revenue — for budget purposes, the upfront taxes count as a fiscal plus. In fact, Roths guarantee federal red ink far into the future: The account holders never pay taxes on capital gains, costing the Treasury untold billions in forgone revenue. Other retirement accounts ultimately pay back Uncle Sam with taxable withdrawals; with Roths, the payback never comes.
One last problem. Given the target audience, the income eligibility limits are bizarrely high. The plan is open to singles making up to $129,000 and couples making $191,000. Why would people with incomes like that choose a myRA? The financial services company Motley Fool touted myRAs as “the best place” for short-term and emergency savings. Yields may be low, but they exceed those of bank savings accounts or certificates of deposit. In addition, the principal can be withdrawn any time. That’s shrewd thinking, but it has little to do with retirement. It also suggests that myRAs could easily be gamed by the relatively well-off.
It’s good for government to help workers save for retirement, all the more so for those who need help the most. It’s not good when the help turns out to be so little or so light.
This is yet another attempt to address the fact that Americans are not saving enough for retirement. But the proposals fall far shot by “trillions” of dollars.
The “MyRA” has nothing to recommend it. It claims it offers lifetime income security funded out of current savings, meaning further reductions in consumption out of already inadequate incomes. It will not succeed in providing any real, substantial retirement security for the majority of Americans whose jobs do not earn more than substance week to week and month to month wages. The plan is designed to encourage Americans to save for retirement and require personal savings and denial of consumption. This is unrealistic given that the Americans with the least opportunity must reduce what is inadequate consumption income in order to accumulate savings for retirement, which for most Americans will be inadequate.
Does anyone really believe that the interest rate to be paid under these programs will be sufficient and able to avert the decline in the value of the money as the government continues to flood the economy with increasingly non-asset-based debt?
The proposal relies on the requirement to reduce consumption in the economy at a time when what is needed is expansion of the economy supported by increased consumption.
As my colleague Michael Greaney at the Center for Economic and Social Justice (www.cesj.org) states, “under the prevailing Keynesian paradigm, of course, ‘saving’ is always defined as the excess of income over consumption. If you want to save, then, the iron assumption of Keynesian economics is that you must consume less.”
The American consumer is being put into an impossible situation of being asked to consume more to drive the economy and reduce saving, and at the same time are being told they must reduce consumption dramatically in order to accumulate sufficient savings for retirement.
Of course, the whole problem would go away if we financed both retirement and wealth-creating, income-producing physical productive capital needs out of future savings, thereby increasing the capacity to consume and support the economy while simultaneously building financial security for every American citizen.
A far better and productive approach would be to create a new way for working and non-working Americans to start their own retirement savings: MyCHA. CHA stands for Capital Homestead Account. It would be a super-IRA or asset tax shelter for citizens. The Treasury should start creating an asset-backed currency that will enable every child, woman and man to establish a CHA at their local bank to acquire a growing dividend-bearing stock portfolio comprised of newly-issued stock representative of viable American growth corporations to supplement their incomes from work and all other sources of income.
We can create new asset-backed money for investment through the existing but dormant Section 13(2) rediscount mechanism of each of the 12 regional Federal Reserve banks that would be backed by “future savings” (that is, future profits from higher levels of marketable goods, products, and services).
President Obama and other elected representatives should advocate for the passage of the The Capital Homestead Act, which will process an equal allocation of productive credit to every citizen exclusively for purchasing full-dividend payout shares in companies needing funds for growing the economy and private sector jobs for local, national and global markets. The new issued shares would be purchased on interest-free credit wholly backed by projected “future savings” in the form of new productive capital assets as well as the future marketable goods, products and services produced by the newly added technology, renewable energy systems, plant, rentable space and infrastructure added to the economy. There will be no prerequisite requirement to qualify for an annual set capital credit loan other than American citizenship.
We need to encourage the insurance industry to expand their product lines to market Capital Credit Insurance to cover the risk of default for banks making loans to Capital Homesteaders under the proposed Capital Homestead Act. Under the provisions of the Act, risk of default on each stock acquisition loan would be covered by private sector capital credit risk insurance and reinsurance issued by a new government agency (ala the Federal Housing Administration concept), but would not require citizens to reduce their funds for consumption to purchase shares.
The end result is that ALL American citizens would become empowered as owners to meet their own consumption needs and government would become more dependent on economically independent citizens, thus reversing our country’s trend where all citizens are becoming more dependent for their economic well-being on the “state,” our only legitimate social monopoly.
The CHA would function as a savings and income account that effectively would build a nest egg over time, using interest-free, insured capital credit loans. A CHA would be offered to EVERY American, whether employed or not. Of course, those employed may also have additional opportunities to acquire personal ownership in their companies using an Employee Stock Ownership Plan (ESOP) trust financial mechanism.
