President Obama's announcement of a new retirement plan for low- to middle-income Americans in his State of the Union address drew scorn from advisors who say many big questions remain to be answered.
Several also suggested the program's name MyRA was clunky and potentially confusing.
"It's such an awkward phrase, even the president stumbled when he first stated it," says Ric Edelman, founder of the large RIA Edelman Financial, referring to Obama's slight mispronunciation of the term in the address.
The very fact that the name is similar to another retirement planning program the IRA may indicate that it is redundant, and may ultimately fail to gain adoption for that and a host of other reasons, Edelman says.
"You can already open one of these accounts at a bank," says Edelman, whose online planning service targets middle class clients.
The MyRA program is mainly aimed at Americans making less than $191,000 a year who do not have access to 401(k) plans. The government plan would automatically draw specified sums of money out of workers' paychecks, an integral feature of 401(k) plans. The value of MyRA accounts would compound at low rates, probably slightly more than 3% at most or, at the low end, a bit more than 1%.
But they would never lose their value thanks to their government backing. Account holders could also withdraw their funds at any time, without incurring a tax penalty, a feature unavailable in both 401(k) and IRA plans. Once the accounts reach $15,000 in value, they must be rolled into IRAs.
The program will be of zero use to planners whose clients by virtue of the fact that they can afford to hire an advisor in the first place won't need it, Edelman thinks.
"So, why do we need yet another program creating yet another level of complexity to the system?" Edelman asks. "I'm looking to see whether this is truly unique or is it merely the 26th mousetrap that the government is creating. If it would cause millions of low-income Americans to save for retirement who are not currently doing so, and I hope it does, the goal is laudable, but I don't think it will succeed."
Sheryl Garrett, head of the influential Garrett Network of financial planners, shares some of these concerns, but also feels that it could mark the beginning of a breakthrough. Garrett planners serve about 25,000 clients nationwide, most of whom are middle class.
"I think it's going to cause a lot of people to actually get started" saving, Garrett says, thanks to the fact that MyRA allows people to save as little as $5 or $25 on a regular basis, without necessarily noticing the money is gone.
A common reason why young people have not started to save is that they fear they will lose money, according to Garrett.
"When people are first starting to save the last thing [they] want to have happen is a bad experience. You invest and lose a quarter or half of your money, or even if they lose a little bit they think, 'Forget that,'" Garrett says.
In recent years, Garrett says she had engaged in an ongoing dialogue with a Treasury Department official about how an automatic savings program could be implemented to help lower-income Americans prepare for their retirement. Perhaps the MyRA program could eventually grow to serve this purpose, Garrett thinks.
But she says she still has questions and concerns.
"My big question is, 'Why does the government have to design an investment program that the industry could have done?'"
The fact that the industry could not have guaranteed the accounts is the only missing link, she says.
"I have mixed emotions that there won't be a tax penalty if [investors] withdraw funds," Garrett adds. "Tax penalties keep us from raping and pillaging our savings accounts, but, on the other hand, those penalties also keep us from saving" in the first place.