By Peter Schroeder and Justin Sink - 01/29/14 03:52 PM EST
Major players in the financial industry are backing President Obama’s move to create a new type of retirement account through executive order.
He said the order creates "a new type of savings bond we can set up without legislation that encourages Americans to set up a nest egg."
"I want more people to have the chance to save for retirement through their hard work," Obama said.
The Treasury-run plan, dubbed “myRA,” is one facet of the president’s election-year push to tackle what he says is a troubling gap between the “haves” and the “have-nots” in society.
Several trade groups for the financial industry welcomed the move. The Investment Company Institute said Obama’s approach “can complement the existing vibrant and competitive private sector retirement offerings.”
The Securities Industry and Financial Markets Association (SIFMA) — one of the most powerful lobby groups for Wall Street — also endorsed the plan.
“Given the vast numbers of baby boomers who reach retirement age every day, retirement savings incentives are needed more than ever to help people ensure their retirement security,” said Ken Bentsen, SIFMA’s president and CEO.
SIFMA heaped praised on the Treasury's efforts in to create program, which has been in the works for years.
“Treasury has been wonderful in trying to figure out a solution that would not harm the current private system,” said Lisa Bleier, the group's managing director.
The warm response is likely a reflection, in part, of how the program is designed.
Once a myRA retirement plan reaches $15,000 or 30 years, whichever comes first, workers would have to roll their government plan into a private sector Roth IRA.
That rule could create a stream of new business for investment banks over time.
In addition, households making more than $191,000 won’t not be eligible for the program, which means the government isn’t encroaching on the wealthy customers who fuel the investing business.
Furthermore, administration officials made clear Wednesday they do not plan to manage the fund in-house. Instead, the administration will be shopping among 15 to 30 financial firms to determine who will run the fund for them.
Despite those reassurances, not everyone in the financial industry is onboard with the new accounts.
The Financial Services Roundtable, which represents the CEOs from the nation’s largest banks, said it needed to learn more about the project before backing it. Some concerns include whether the government push could end up crowding out private business and whether employers would face added burdens from the new plan.
The White House said the myRA program will allow poor and middle class Americans to open a no-tax savings account for as little as $25. Contributions, which can be as little as $5 per month, would be made through automatic payroll deductions.
Senior administration officials said the initiative is aimed at people who do not have easy access to traditional retirement plans, and as a result often end up shorthanded come retirement.
Officials highlighted that roughly half of women do not have any 401(k) savings, despite having longer life spans than men.
"If you work hard all your life, you deserve a secure retirement," Obama said.
White House officials say the modest savings accounts would open up retirement savings programs to the millions of workers who don’t have such an option through their employers.
Employees would not have to pay fees to join the government plan and would be able to tap into their principal without paying a penalty.
"What I'm hoping is that working Americans will take a look because I want more people to have the chance to save for retirement through their hard work," Obama said. "And this is just one step that we can take to help more people do that."
Investments in that low-risk fund would receive returns comparable to what federal employees receive in one of their retirement plans, the Thrift Savings Plan Government Securities Investment Fund. Those returns are adjustable, and based on the savings rate of the U.S. government.
And since the accounts would be federally backed, they would never lose money.
The White House hopes to get the plan up and running by the end of 2014, first via a pilot program with a handful of employers.
— This story was updated at 4:58 p.m.