There should still be enough interest to make the process of deciding which private firm will run President Obama’s myRA program competitive, says William Sweetnam, policy and legislation co-chair at Groom Law Group. He tells PLANADVISER that the bidding process will likely favor niche service providers that already specialize in low-balance individual retirement accounts (IRAs), such as those providing automatic rollover and cash out services for terminating pension plans, among others.
Sweetnam served as Benefits Tax Counsel in the Office of Tax Policy at the U.S. Department of the Treasury during the Bush Administration, and he closely tracks happenings in the department in his work at Groom.
He says larger service providers tend to have business models that rely on clients building larger and larger account balances to offset administration costs and provide more attractive profit margins. The myRA proposal, in contrast, would limit account balances to a relatively scant $15,000. Once a worker reaches the limit, the balance will be rolled into a privately run Roth IRA.
According to explanatory materials published on the White House’s website, initial investment into a myRA account could be as low as $25, and contributions could be set as low as $5 per paycheck. Such small balances could make profitability difficult for many firms.
Sweetnam is quick to add that concrete details about the myRA, which Obama proposed in his fifth State of the Union address, are still scarce and largely unfinished. He says the Treasury seems to be in listening mode and is actively soliciting meetings with interested parties across the business and regulatory landscape.
“I’m not sure whether they even have much of the real detail ironed out yet,” Sweetnam says. “They’re talking to the relevant financial organizations, the payroll service providers, the regulatory agencies, and they’re going to be working to develop the initial RFPs that will get the bidding process started.”
The administration has made it clear that it wants to start with a workplace myRA pilot program before year’s end, Sweetnam says, which means requests for proposals (RFPs) should be expected soon—probably in early Spring. He expects the pilot program to focus on establishing a system for funneling workplace payroll deductions into myRA accounts, with wider rollouts to the self-employed and other categories of workers coming later.
Sweetnam says his expectations for the myRA rollout are largely shaped by his experience leading the teams that provided they Treasury’s initial guidance for Health Savings Accounts (HSAs) and Health Reimbursement Arrangements (HRAs), which are both structured similarly to the Roth IRA.
“When we were introducing the HSA products, which are really built on the chassis of the Roth IRA, we had a lot of the small and mid-sized banks expressing the most interest,” he says. “I think you can expect to see more competition come up from there this time around.”
David Levine, also a principal at Groom Law Group, echoed Sweetnam’s predictions, both in terms of the program’s challenges and what firms are likely to join the bidding process. Levine tells PLANADVISER that there are still important questions to be answered in terms of how much financial support the Treasury is willing to put on the table to ensure workers contributing to a myRA face the lowest possible fees and expenses.
The smaller niche service providers that Levine and Sweetnam say are likely to throw a hat in the ring, for their part, are not especially well known for providing the lowest expenses to their clients. Still, Levine says the Treasury’s effort should be helped by the fact that a myRA’s chief investment vehicle will be the Government Securities Investment Fund, meaning it can ensure fees for the investment are minimal.
Levine says the Treasury and the administration have another reason to get the myRA program running by the end of the year.
“Next year is 2015, so if they’re going to run the data for the test project and then roll it out more widely, we’re going to be approaching the end of an administration by that point,” Levine says. “So you want to try and have something running sooner rather than later, so you’re not sitting there in 2016 rushing to get it out the door before the next administration comes in. Depending on the election, it could be someone with a different view on the program that takes over.”
Sweetnam agrees, adding that the issue is particularly pressing because the program is being launched not by an act of Congress, but on the President’s executive authority.
“What you want to do, if you’re the president, is get the program off and running and make sure it’s successful, so that the next administration can’t really come in and shut it down without an uproar,” he says.