Charlea Primus had never had access to a retirement plan at work, until about a year ago, when her boss encouraged her to participate in the myRA program.
Bernard Grant, the owner and manager of Visions Hair Salon in Mount Laurel, N.J., where Primus is a hairstylist and shop manager, adopted the myRA program for his employees because he couldn’t afford to offer them a traditional 401(k) plan but wanted them to have an opportunity to save for their futures at work.
Grant had the opportunity to purchase U.S. Savings Bonds when he was in the military. After serving six years, he was able to purchase his first home with the money he saved through those bonds. When he heard about President Barack Obama’s myRA program, he “immediately wanted to expose that to as many people as I could. We got 85% to 95% of everybody enrolled into it. Most have been enrolled for about a year now,” he says.
“This opportunity isn’t presented to us in this industry often,” says Primus, a 24-year-old mother of two. “Bernard does a lot with us with finances, along with the myRA. He offers health insurance, life insurance and dental insurance, which are all things I’m a part of. When he mentioned myRA, it was not hard to sell me. It made perfect sense. I was very happy to open up a retirement plan,” she says.
Pimus adds, “Being in this industry, it is not something I thought I had the opportunity to do.”
MyRA was created because 40% of Americans don’t have access to a retirement plan at work, says Richard Ludlow, executive director of the myRA program at the Department of Treasury.
What makes the program accessible is that there are no fees and no minimums necessary to participate in the plan. “It is a quick and simple way to save for retirement,” he says.
A new breed of savers
The program has been around for a year. There are an estimated 15,000 people enrolled in it so far and Ludlow hopes to enroll at least an equal amount this year. The average contribution is $52 a month.
“We are reaching people who don’t have a couple thousand dollars to set aside,” Ludlow says.
As the country heads into open enrollment time, this is the perfect time for companies to start thinking about their employees’ finances. Tax time is another great time for employers who can’t offer a traditional plan to offer up the myRA as a substitute.
“We’ve seen interest from quite a few small business owners who would like to support their employees but maybe can’t afford to set up a retirement plan themselves at this point in time but would like to offer employees a way to save,” Ludlow says.
Individuals interested in participating in myRA can visit myra.gov to create an account. They can either fund the account through direct deposit through their employers or have the money withdrawn from their checking or savings account.
The myRA is a Roth IRA. It is designed for long-term savings for retirement. People make contributions on a post-tax basis so they are able to take out their contributions at any time if they need it for an emergency, he says.
“It is designed to be a starter account for people who want to get started saving, no fees and no minimums are attractive to people who haven’t built up any savings of any kind and are getting started for the first time,” Ludlow says.
This program really targets lower- and moderate-income individuals. “Our intent is to build up their initial base of savings. Once they have enough accumulated, then they can roll it over into a more diversified investment account in the private sector,” he says.
Many people, who are new to saving, are risk averse. That’s why the myRA program offers fully principal-protected Treasury securities. Accounts were earning interest at 1.875% APR in November. They earn interest at the same rate as investments in the Government Securities Fund, which earned 2.04% in 2015 and had an average annual return of 2.94% over the 10-year period ending December 2015.
Once someone has saved up $2,000, they have enough to meet the minimum balances at most brokerage accounts and, by then, they might be more willing to take on additional risk. If a person leaves their money in the account, it travels with them when they switch jobs.
“It is a retirement savings account that is a bridge to a retirement investment account,” Ludlow says.
“We’ve seen literature that has shown that individuals treat money put in a retirement account different than a general savings account. We encourage people to make that differentiation so they are building their retirement savings separately from other savings.”
A 401(k) alternative
Grant says that he looked into 401(k)s, but they would cost him an additional 3%.
“I’m already paying the maximum commission to my employees. It would be impossible to tack on an additional 3%, in some cases $1,000 to $2,000 in maintenance fees to manage the 401(k) plan,” he says.
“The industry has a 40% turnover rate.”
That’s why it is so important to him that his employees can take their myRA accounts with them when they change jobs.
He added that he doesn’t believe the myRA program will go away under President Donald Trump because the program is “not too much different from the savings bonds that have been around forever. I don’t see this changing and, if it does change, at least I’ve had the opportunity to get people involved and now it will be easier to transfer them from this to other mainstream Roth retirement plans.”
Primus says that having the myRA makes her feel very responsible.
“I’m constantly looking for ways to better myself and become a more responsible mom. This is planning for our future and has given us the opportunity to save,” she says.
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