Last year in his State of the Union address, President Obama announced a new option to extend workplace retirement accounts to some Americans who don’t currently have them. Since then, MyRA has officially launched and workers can make deposits to their accounts. As of a few weeks ago, workers at participating employers who don’t otherwise have access to a workplace retirement plan can make payroll-deduction deposits of any size (up to $5,500 a year). Their contributions – which are invested in government bonds and are guaranteed not to lose value – can be withdrawn at any time in case of emergencies and earnings can be withdrawn tax-free during retirement.
We’ve also seen several important developments for the retirement and savings prospects of low-income Americans and there are other exciting ideas that are gaining traction. Indeed, programs designed to help individuals save more and prepare for retirement have advanced in the administration, in the academic and advocacy community, in Congress, and in the states. Here are some of the biggest ideas aside from MyRA:
Prize-Linked Savings: The promise of a lottery you can’t lose seems unlikely. But prize-linked savings (PLS) offers a pro-savings alternative to a traditional lottery. PLS account holders are entered into periodic raffles for cash prizes with every deposit that they make. Even if the prize goes to someone else, their deposits are safeguarded in their account. Until recently, PLS accounts were only available at credit unions in a few states, but in December, the enactment of the bipartisan American Savings Promotion Act (ASPA) permitted the accounts to be available nationwide. Best of all, academic research and prior experience suggests that PLS products entice non-savers to get on the bandwagon. Look out for a BPC event in the coming weeks with cosponsors of the ASPA and a panel of experts to discuss the promise of PLS and next steps for implementation of the new law.
State Secure Choice: Some states have decided to move forward with retirement policies of their own. In December, Illinois moved towards becoming the first state to implement a statewide requirement that many employers enroll their employees into some type of retirement plan. In Illinois, employers with at least 25 employees that do not already offer a retirement plan will have to enroll their employees into a payroll-deduction IRA offered by the state (though employees can opt out). California passed a similar law in 2012, but it requires additional legislation before implementation, so Illinois is likely to be the first state with near-universal access to workplace retirement plans. While these state-level initiatives are controversial, the heightened interest in ensuring that all workers have the ability to contribute to a retirement plan at work is an important trend.
Child Savings Accounts: Many children in the U.S. are born into families with little or no savings, and there are a number of bipartisan efforts to create child savings accounts. These accounts are typically seeded at birth with money that can be augmented over time by families, friends, and the children themselves. Deposits are usually matched or otherwise incentivized. The child takes control of the account at age 18, and there is evidence that children with savings are more likely to enroll in and graduate from college. These accounts are available in some states, but there are many policy proposals for coordination at the federal level.
Savers Match: The tax code features a saver’s tax credit of up to $1,000 for people who contribute to workplace retirement plans or Individual Retirement Accounts – but it’s poorly targeted. The credit is hard to claim, only applies if you have income-tax liability (which most low-income individuals do not), and is provided in the form of cash rather than being deposited into the account. Addressing all of these issues could be expensive, but many analysts and advocates are in favor of taking on some pieces, perhaps in the context of larger changes to the tax code.
There is more work to be done on MyRA and other nascent ideas. That is why the Bipartisan Policy Center’s (BPC’s) Commission on Retirement Security and Personal Savings continues to develop policies that would further improve Americans’ retirement prospects. Many workers struggle to save, especially for retirement. The past year hasn’t brought a dramatic reversal of these fortunes, but it’s clear that interest in savings policy is brewing. And for this heightened profile, the administration, Congress, and several states can all share the credit.
Alex Gold served as a policy analyst for BPC’s Economic Policy Project.