By Nancy Wilberg Ricks, Senior Policy and Communications Strategist, NCLR
Latino families often have fewer opportunities to save for retirement than their White counterparts. Two-thirds of Latinos are employed by companies that do not offer any type of retirement plan at all. In fact, many work in low-wage jobs for small, private companies or in industries where retirement savings plans are not commonly offered, such as construction, hospitality, and maintenance. Working for an employer who does not offer a retirement plan presents considerable obstacles when trying to save for the future. There are solutions, though.
In early 2014, President Obama created the myRA plan by executive order. The myRA is a public retirement plan that provides savings opportunities for workers at companies that do not offer retirement programs. It gives individuals the opportunity to save for retirement, supplementing existing IRAs, Roth IRAs, and 401(k) retirement accounts. This savings vehicle has several unique, attractive characteristics that address some of the reasons why Latinos are disproportionately excluded from workplace retirement plans. These include:
- Automatic deposits. This simplifies savings and mitigates administrative costs, making the plan more cost-effective for employers and employees.
- Small payments. An initial investment of just $25 is required to open a myRA, and subsequent contributions can be as low as $5. Many retirement plans have high thresholds and leave out people of modest income. Lower payment parameters help families achieve more reasonable, incremental savings goals.
- Principal protection. Contributions—the money workers put into the myRA account—will never decrease in value. While the rate of return would be relatively low compared to private funds, the government would guarantee that none of the initial principal would be lost.
- Nominal penalties. Contributions can be withdrawn at any time, cost-free and without penalty. Earnings can be withdrawn tax-free after five years and once the saver is 59 and a half years old. This is important, as many Latino families with 401(k) plans are more likely than Whites to take early withdrawals.
- Portability: The myRA account is not tied to any one employer. This is especially promising for younger workers who are expected to hold as many as 15 to 20 jobs throughout their career.
- Generally cost-free with no fees. One must invest $25 to open an account, but this goes into savings. There are no real fees or hidden costs. This is essential, as other plans frequently have confusing fee structures and hidden service costs.
To further motivate families to save, the president enhanced the myRA program by proposing to expand access for part-time workers who are normally excluded from retirement plans. The administration aims to fuel these new measures by closing loopholes that serve the very wealthy. These proactive measures, in tandem with improved outreach, should enhance retirement outcomes for the workers most in need.