Bipartisan retirement proposal offers economic security to millions of Commonwealth residents
According to an informational summit on Oct. 15 at the Lehigh County Government Center in Allentown, millions of Pennsylvanians may have a simple and inexpensive way to save for an economically stable retirement in the near future.
Pennsylvania State Treasurer Joseph Torsella and a panel of legislative sponsors and organizational representatives presented details about the Keystone Saves retirement program, a proposed effort to improve retirement security by offering low risk, failsafe options for employees to save money.
According to Torsella and State Sen. Art Haywood, D-4th, the program offers a portable auto IRA to employees who do not have an employer-sponsored retirement plan; employees of companies that offer a retirement plan are ineligible for this program.
The auto IRA automatically enrolls eligible people and allows them to select from a range of preselected investment options to determine the amount of money they want to put away for retirement.
The accounts are owned by employees, who can choose to opt out at any time, and can move between jobs without the need for reenrollment.
A financial literacy component will also be included in order to inform people about the plan and educate them on the language and details of planning for an economically secure retirement.
The Keystone Saves proposal is expected be managed through a public-private partnership. The processes would be administered by the Treasury Department while a private sector provider would be selected through a bidding process to run the program.
For employers, the program removes many of the obligations and costs associated with traditional retirement plans. Haywood and Torsella noted that employers’ only responsibility would be processing payroll deductions so employees can save their own money.
The plan does not require nor permit any employer or business contribution to the retirement account.
“All the money coming in is from the employee side,” Haywood said. “This is not a pension plan; this is a plan dedicated to private savings.”
Torsella, Haywood and other panelists also discussed the history of the auto IRA, the status of similar retirement security programs nationwide, employer concerns with Keystone Saves, and the potential impact of this retirement plan on local businesses.
Keystone Saves seeks to address the growing Pennsylvania retirement crisis. Melissa Kahn, a managing director at State Street Global Advisors, reported that Pennsylvania has the fifth largest percentage of people in the nation over the age of 65, and is aging faster than other states.
Additional data recorded by the Treasury’s Retirement Task Force and the Independent Fiscal Office determined that more than half of future retirement households make less than $20,000 per year, and that 2.1 million Pennsylvanians do not have a way to set aside retirement money through their employer.
This number is projected to grow in the coming decade. “That fact is going to cost us, and it’s going to cost them over time,” Torsella said.
An investigation by the task force projects a nearly $16 billion loss to the Commonwealth’s budget over the next decade due to increasing state assistance costs for the elderly and decreased consumer spending and tax revenue associated with retirement unpreparedness.
Torsella said that a significant portion of these costs and lost revenues could be mitigated by a modest increase in the level of lifetime retirement savings.
“There are people who still argue that this isn’t a crisis, or that somehow the private sector can figure out how to manage its way out of it without any reasonable help,” Torsella said. “That would be news to most people.”
The Keystone Saves proposal has already garnered bipartisan support; the plan’s cosponsors include both Democratic and Republican congressmen, and the pending legislation has bicameral support in the Pennsylvania House and Senate.
“We have a cosponsored memo request to get support from the state senators, it’s gathered a lot of bipartisan support already,” Haywood said.
“We’re really glad that we can move this along for the Commonwealth.”
“This option, of providing and working with our business community and providing a retirement plan for their future, I think is really smart,” State Rep. Michael Peifer, R-139th, said.
“I think there’s a lot of winners here. We might have to convince some people, but I really think this is something we need to do.”