By Patrick Temple-West and Ross Kerber
WASHINGTON/BOSTON, Jan 29 (Reuters) - President Barack Obama's new "myRA" retirement savings program will be run by a private-sector money management firm chosen by the U.S. Treasury Department from a field of up to 30 firms, a senior administration official said on Wednesday.
In a competitive bidding process to begin in the next few weeks, the Treasury Department will select a firm with experience in handling Roth individual retirement accounts (IRAs), the official said on a conference call with reporters.
The time frame was not clear, with the official saying only that selection would take place in months ahead.
With millions of Americans saving little or no money for retirement, Obama unveiled his myRA account idea in his State of the Union speech on Tuesday evening. He wants the program to get under way in 2015, but many details remain to be worked out.
The myRA would create another option for retirement savings, supplementing the existing IRAs, Roth IRAs and 401(k) retirement accounts. The myRA targets mainly lower-income Americans and those employed by small companies that tend not to offer retirement programs.
Obama was scheduled to appear at a U.S. Steel Corp. plant in Pennsylvania on Wednesday afternoon to talk about the program and sign an order directing its creation by the Treasury.
Karen Friedman, policy director at the Pension Rights Center in Washington, praised the outlines of the myRA, especially for giving people a start on retirement savings.
"The good thing about it is, for people who have very small balances, a lot of financial institutions really don't want those accounts," she said.
"Financial institutions should welcome this proposal. It enables lower-income workers to start accumulating money," which they can then put into regular retirement accounts, she said.
It also spares workers from paying fees that can wipe out gains in smaller accounts. "If you talk to any financial institution, they will tell you they don't make money off these accounts," she said. "This works for both sides."
The White House said myRAs holdings would be backed by the U.S. government like savings bonds.
Money in a myRA could be withdrawn tax-free at any time. Initial investments could be as low as $25, and contributions as small as $5 could be made through payroll deductions.
LOW PARTICIPATION RATES
About 64 percent of private-sector employees, and 89 percent of state and local government employees, had access to retirement benefits in early 2013, government data showed.
Of private-sector workers with access to retirement programs, only about half actually participated in a plan, versus 85 percent in the public sector, the data showed.
Access and participation were lower still for those employed by small businesses, many of which lack retirement plans.
The White House said on Tuesday that employers would need to register in a pilot myRA program by the end of the year for their employees to participate voluntarily in it.
The myRA would resemble the Roth IRA, the White House.
Eligibility for a myRA would be capped at household income of $191,000. Participants could save up to $15,000 in a myRA, over a maximum of 30 years. Once one of those limits was reached, the accounts would have to be rolled into a Roth IRA.
Investors would earn a variable interest rate equal to the Thrift Savings Plan (TSP) Government Securities Investment Fund, a retirement account program available to federal employees.
MyRA accounts will be funded through direct deposit from payroll deductions. "At some point, we will consider other ways of allowing people to participate, but no decisions have been made," the senior administration official said.
Though millions of Americans would be eligible to open myRAs, the Treasury Department did not have an estimate of how many individuals may participate.
Derek Dorn, a tax and retirement benefits lawyer with Davis & Harman LLP, said that since payroll-deduction IRAs are already available, "it is not clear to me that the new myRA is going to really move the dial significantly."
Still unclear were issues such as how depositors would interact with their myRAs and exactly what role employers would play in signing up employees for the accounts.
Cliff Caplan, president of Neponset Valley Financial Partners, a wealth adviser in Norwood, Massachusetts, said he was initially skeptical of Obama's new program. It could create complexity, he said, and some savers might be better off in plans earning higher interest rates.
A better solution might be to expand the use of current vehicles, such as by increasing the amounts that can be contributed to a Roth IRA, Caplan said.
On the other hand, he noted savers under Obama's plan would benefit from its guarantees. "The good news is they're safe," he said of the myRA accounts. "But a little risk isn't bad."