J. Mark Iwry was senior adviser to the Treasury secretary during the Obama administration, and the chief architect of the MyRA program, which the Trump administration ended last week. Below are excerpts from a recent interview with him about the program and its termination.
InvestmentNews: What were the objectives of the MyRA?
Mark Iwry: The overall objective was to provide a safe, simple, affordable way for non-savers, particularly those not eligible for a 401(k) and those not comfortable investing in the market, to start on a lifetime habit of saving. With that objective, we had a number of different potential, and in our view, promising, applications for MyRA. They were the ability save in the workplace by payroll deduction, if the employer was willing, the ability to save on your own by contributing online, and the ability to save a portion of your tax refund by direct deposit through the IRS when you file your tax return. And you could do that, in each case, after only a few minutes opening an account online.
The expectation was that the MyRA would be a valuable supporting player in various roles in our national savings infrastructure, including not only the three methods of contributing, but a variety of potentially large-scale uses. For example, the state automatic IRA programs took a great interest in enhancing plan designs with the MyRA. Oregon had already planned to use the MyRA as the safe principal-protected option within the investment lineup.
California held promise of an even wider-scale takeup. Because their state legislation provided for an automatic IRA, it provided for a transition investment in the MyRA for what was expected to be two or three years, pending California's final determination of its default investment. The MyRA could have been a safe and simple parking lot for potentially millions of contributions for the first two or three years.
In Oregon, the intention was to use MyRA as one of three investment options — the safe option. Other states were also exploring the potential use of the MyRA. But the Trump administration stepped in to prohibit California and other interested states from using the MyRA.
IN: What was financial industry's reaction to MyRA?
MI: Generally quite supportive. In fact, the MyRA was inspired in large part by our discussions with the financial industry that predated the Obama administration. Key industry representatives endorsed the policy ideal of building a nation of savers while acknowledging that they were hard-pressed to service profitably the small deposits of millions of new, less-affluent savers, where costs of administration and investment would exceed investment returns. Most of the industry was leery of accepting the smallest accounts.
At the same time, MyRA was explicitly designed to avoid competing with private-sector products, including through the $15,000 ceiling on MyRA balances. The industry rightly viewed the MyRA as not a competitive threat to their products, and, in fact, it was designed to prime the pump of private-sector saving by ending up as private-sector assets under management.
IN: How did you react to the Trump administration's justification for ending the program?
MI: I find their rationale baffling. First, the program was not a short-term play, but intended from the start as a long-term, multiyear investment in national savings. The potential sources of large-scale takeup included not only the payroll deduction, direct contributions and tax refund deposits, but importantly, the use of the MyRA as a key element in the state-facilitated retirement savings.
The Trump administration also referred to the availability of low-cost, private-sector options. But this disregards the point that MyRA was designed to attract non-savers, who still don't use the existing private-sector vehicles, by combining safety backed by the full faith and credit of the United States, no risk of decline in principal, full liquidity, medium-term Treasury bond interest rate, no minimum balance and no fees — a combination not available in the private sector.
Earlier in the year, the Trump administration cut off the availability of MyRA to the states, thereby eliminating what might have been the most immediate prospect of a takeup in the millions. After that, the Trump administration concluded that takeup to date had not been large enough, apparently ignoring the potential for a large-scale takeup over time. MyRA was also identified as a potentially key part of the solution to abandoned or orphaned accounts. Those individuals who abandoned their accounts might find it easier to find MyRAs invested at Treasury. It seemed entirely feasible and workable to go down that road.
MyRAs could potentially be a destination for short-term rainy day savings. Recently, interest has grown in helping the surprisingly large part of the population that don't know where they could find a few hundred dollars in an emergency. MyRA was one of the most promising tools for accomplishing that.
IN: Wasn't the cost of administering the program a problem?
MI: We don't know what they included in their estimate of $70 million in startup costs. MyRA is a long-term investment in asset building for American families, with the potential and versatility to play an important supporting role by helping bring millions of non-savers into the savings system. Why evaluate a long-term, broad-scale program as if it were a short-term play — without recognizing that initial startup costs and annual costs might reasonably be expected to be amortized and recovered over the years, given the prospect of large-scale takeup and major long-term results in the future. It's fair to say there are several legitimate ways to evaluate a program's costs and benefits; prematurely is not one of them.
It shouldn't matter whether it was developed in the Obama administration or the Bush administration.