But there is also a chance that they could rely on a new form of bond — an “R bond” — as the basic building block for the auto-IRA, Mr. Iwry said in addressing reporters at the Treasury Department in Washington last week.
Administration officials are discussing the exact details of these R bonds, such as their interest rates, maturities and minimums, he noted. These bonds ideally would provide individuals with a source of secure, steady returns that would protect their initial investments.
There are two reasons in particular that R bonds could be an attractive default investment option for auto-IRAs, Mr. Iwry outlined.
For one, many of the individuals who would be automatically enrolled in these accounts could be people who had never saved for retirement, he noted. And if their auto-IRA assets are invested in a vehicle that could decline in value or at least fluctuate frequently, these workers may be discouraged from continuing to save, and could choose to opt out of the plan.
Using R bonds as the cornerstone for these accounts, however, could eliminate this volatility issue.
The bonds would also address a second potential problem in getting the auto-IRA program off the ground, Mr. Iwry explained.
Many of the auto-IRA accounts will be fairly small at first, a factor that could dissuade financial services providers — such as mutual fund companies and investment advisers — from wanting to manage these assets.
R bonds, Mr. Iwry said, could serve as the “training wheels” that would allow workers’ auto-IRAs to grow to the point where they would be more attractive to the financial services community. Essentially, these bonds would serve as the bridge between the public and private sectors in the auto-IRA program, he added.
Once workers established more substantial balances, then they could “graduate” to something more appropriate for a long-term retirement investment, such as a target date or life-cycle fund.
