President Barack Obama's plan for a new type of retirement account may help some Americans, but it's unlikely to be a panacea for the U.S. retirement crisis.
In his State of the Union address Tuesday night, Obama proposed new accounts that would be available to the 4 in 10 American workers who don't have access to 401(k) plans through their jobs.
It's a laudable goal, but it's questionable how attractive or helpful the president's ideas might be to the millions of lower-income Americans who are struggling to make ends meet.
The president also injected a dose of uncertainty for investors with existing 401(k) plans and individual retirement accounts. He indicated a desire to roll back some of the retirement-related tax advantages for higher-income wage-earners.
That sparked immediate concern from the financial-services industry, which makes enormous profits managing retirement accounts.
"While we welcome the president's effort to create new retirement savings opportunities, it is with regret and deep concern that we heard his comments about reducing the retirement tax incentives that have been part of the foundation for the success of the private sector retirement system for all Americans, including hard-working middle income Americans," the Investment Company Institute, a mutual-fund industry trade group, said in a statement.
Obama seemed to make two separate proposals for helping Americans with insufficient retirement savings.
He said he would direct the Treasury Department to create "MyRA" accounts, which would allow people to invest in government savings bonds that guarantee "a decent return with no risk of losing what you put in."
Only 59 percent of workers 16 and older are eligible to join 401(k) plans, according to the Employee Benefit Research Institute.
"Today, most workers don't have a pension," the president said in his address. "A Social Security check often isn't enough on its own. And while the stock market has doubled over the last five years, that doesn't help folks who don't have 401(k)s."
There are many questions and potential shortcomings concerning the plan. One is that savings would flow into lower-yielding government bonds rather than the stock market.
The president also proposed automatic IRAs, an idea that has been kicked around in policy circles for years.
There could be potential benefits to such a plan -- especially having a portion of savings automatically flow into accounts rather than go to workers who might be tempted to spend the money -- but it appears that such IRAs would need congressional approval.