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Nudging Congress, Obama hopes new retirement program will spur action on automatic IRAs

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WASHINGTON - Even proponents of President Barack Obama's new retirement savings program readily concede it won't be a cure-all for a nation of people who are saving far too little for their golden years. Many Americans won't be able to participate initially, and those who do may find the benefits are modest.

Yet the Obama administration is hoping that the savings program — dubbed "myRA," for "my IRA" — will serve as a call to action, spurring Congress to take more sweeping steps to shore up retirement security as company pensions become a thing of the past. Given a presidential boost, like-minded lawmakers are already pushing new legislation to vastly expand the number of Americans who put away cash for retirement.

"This is a small first step," said Nancy LeaMond, AARP's executive vice-president. "We think it is starting to generate a debate. Our hope is there can be action."

Aiming to help the roughly half of Americans with no retirement plan at work, Obama announced in his State of the Union speech Tuesday that the Treasury would create new "starter" savings accounts. The program is geared toward low- and middle-income Americans who lack the upfront investment that many commercial IRAs require. Starting with as little as $25, savers could invest a little each month in Treasury bonds and then convert the accounts into traditional IRAs once the savings grow.

The idea is actually contained in a broader retirement proposal that Obama has been asking Congress to take up for years in his annual budget request. Obama wants all workers to be automatically enrolled in IRAs unless they specifically opt out. Under one scenario, monthly paycheque deductions would be invested in bonds unless workers choose another option.

But Congress hasn't acted on the proposal. So Obama is carving out the part he can accomplish without Congress and hoping that by raising the issue, lawmakers will feel pressure to act and the remaining pieces will fall into place.

Call it a "me first, now your turn" strategy — not dissimilar from the approach Obama is taking on wages. The president is ordering a higher minimum wage for federal contractors in hopes that Congress will take the next step by raising the wage for all Americans.

"I could do more with Congress, but I'm not going to not do anything without Congress," Obama told workers at a Pennsylvania steel plant on Wednesday as he signed a presidential memo creating the myRA program.

Yet as with the minimum wage, the retirement program illustrates the severe limitations in what Obama can do to alter the economic reality for Americans when Congress refuses to go along.

Workers will only be able to open myRA accounts if their employers agree to participate in the program, at least initially. Although myRA has been in the works for years, the Obama administration said Wednesday it hasn't yet secured any commitments from businesses to offer it, and Treasury Secretary Jacob Lew offered no prediction for how many Americans might participate.

The White House said it was optimistic that since the program won't cost much to employers, businesses will be glad to take part. But because the program relies on paycheque deductions, businesses that don't use automatic payroll systems will be excluded unless and until the administration develops a new system for them to participate.

Leading providers of retirement accounts, including Fidelity and Vanguard, said Wednesday they were supportive of Obama's myRA program even though they were still studying the details. Still, there's scant evidence that Congress will take up the baton from Obama by making IRAs automatic.

Seeking to build on Obama's momentum, Sen. Tom Harkin, D-Iowa, who chairs the Senate's pension panel, plans to introduce a far-reaching bill Thursday that includes automatic enrolment in retirement plans, called USA Retirement Funds, that would be similar to pensions.

Previous attempts to require auto-enrolment have stalled in both the House and Senate. But Rep. Richard Neal, D-Mass., who has been pushing automatic IRA bills for years, said he's already seen new interest in the wake of Obama's announcement.

"A couple of Republicans have already spoken to me this morning about it. They'd love to figure out how to embrace it," Neal said, declining to name the Republicans.

But after the calamitous rollout of Obama's health care law, skepticism is running high in Washington about big, new government programs — especially those that touch Americans' personal finances. And businesses are concerned about their own liability if employees who are enrolled involuntarily grow dissatisfied with how their investments perform.

"Similar to the concerns with health care, where you're trying to expand coverage, when you mandate options, you drive people to something that's not as good as what the private market is offering," said Aliya Wong, who heads retirement policy for the U.S. Chamber of Commerce.

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