Treasury rolls out a new savings plan without a Congressional vote.
Dec. 29, 2014 7:20 p.m. ET
Hey, kids. Uncle Sam has a new investment offer for you. Even if you have several decades of productive work ahead—and thus a long investing time horizon—the White House wants you to consider a retirement plan that will invest in nothing but U.S. government debt.
Any financial professional who advised a young investor to avoid stocks and corporate bonds—and everything else except Treasury bonds—would be sued for malpractice. But asset allocation is merely one of the problems with the new “myRA” fund rolling out from the Treasury this month.
A form of Roth Individual Retirement Account that allows people to save after-tax dollars and watch them grow tax-free until retirement, the new myRA offers a single investment option. It’s a private version of the G Fund that is available to federal workers and has lately been delivering annual returns of about 2% on its portfolio of Treasury securities.
Intended for those who haven’t started saving for retirement, don’t have a retirement plan at work, and make less than $129,000 per year ($191,000 for married couples filing jointly), the myRA requires no minimum investment to open an account and promises no fees for investors.
Readers will recall President Obama ’s announcement of this program in January’s State of the Union address. Mr. Obama said that he would direct the Treasury to create this new retirement plan, which was puzzling because such plans are normally created by law, not Presidential order.
Congressional staff were as puzzled as anyone and wondered how the White House would justify the creation of this new savings vehicle. Or perhaps Team Obama would seek new authority from Congress? Well, Treasury is now offering these accounts and has hired Texas-based Comerica to manage them with a partner, Fidelity National Information Services . But the executive branch received no new authority from Congress this year to launch the program.
Treasury is funding the program out of the budget for its Bureau of the Fiscal Service. The assertion here is that existing law allows this part of the Treasury to hire financial agents as part of its mission to efficiently finance the federal government.
But that’s a reach, because far from delivering efficiencies for the taxpayer, this program is designed to subsidize the investors. Not that a low-yielding Treasury securities fund is the right move for these first-time investors. But this is a deal they cannot find in the marketplace because it would be unprofitable for any company to offer it, given that the investor pays no fees and can contribute as little as he wishes in regular payroll deductions. Taxpayers are covering the costs, though their elected representatives in Congress never voted to create the program. So far Treasury also hasn’t told us the fees it is paying Comerica.
The subsidies in myRAs are likely to be small at first, but the history of government programs is that they expand over time. And if such a subsidy scheme can be enacted administratively, does anyone think this will be the last time such power is exercised?
New investors should be encouraged to consider ways to build wealth beyond simply lending money to the feds. And if politicians want taxpayers to support another retirement program, they should do so through law, not White House whim.