A Philly first: A city official proposes a retirement plan for small businesses

Nancy Morozin, left, owner of the Dining Car Diner on Frankford Avenue, said she’d like to provide retirement savings for her employees, but setting up a plan is complicated. ( JESSICA GRIFFIN / Staff Photographer)

City Controller Alan Butkovitz asked City Council on Wednesday to create a plan to help Philadelphia workers in small businesses save for retirement at their jobs.

“It could help hundreds of thousands of Philadelphians retire with financial independence,” Butkovitz said in a statement.

More than half of Philadelphia’s workers lack access to employer-sponsored retirement plans, such as pensions and 401(k) plans, according to a report from Butkovitz’s office that proposes a plan for private-sector workers to start saving for retirement.

The idea is to create what would amount to a city-government-administered plug-and-play system for small employers who have neither the money nor the expertise to create retirement plans for their employees. Businesses could voluntarily choose to participate in a multi-employer retirement 401(k) plan with investments and administration handled by a third-part administrator and investment firm chosen by the city through a bid process.

Philadelphia would be the first city in the nation to set up such a plan. Seattle and New York had also contemplated instituting city-run retirement savings programs, but their approaches ran up against changes in the political climate in Washington. The multi-employer approach advocated by Butkovitz remains viable, the report maintains.

Butkovitz, who lost his bid for reelection in May and will leave office by next January, wants City Council to run a feasibility study, set up the plan, and figure out important elements, such as whether employees should be automatically enrolled with the option to opt out, or whether they should have to opt-in.

“We appreciate the controller’s continued interest in the subject,” Councilwoman Cherelle Parker, chair of the Retirement Security Task Force for Private Sector Employees in Philadelphia, said in a statement. “In light of the recent steps taken by Congress severely hampering the ability of states and cities to expand retirement security, the task force continues to evaluate all of our options,” including the multiple-employer plan. Parker said her task force would make its recommendations to Council by the end of the year.

City Council President Darrell L. Clarke did not respond to a request for a comment.

For employers, the main expense would involve adjusting their payroll process so automatic deductions would go directly to the multi-employer fund. Employers would not have to contribute to the plans, although they could make that choice. A chief advantage would be that they would not be the owners of the plans and, thus, would not be legally liable or responsible for all the regulatory paperwork, the report said.

Employees tend to save more if they are automatically enrolled, with an option to opt out. Workers would also pay the typical administrative fees, which would diminish as more people joined the plan, the report said.

The report says it might be a tough sell: “Some in the business community react negatively or with skepticism toward any publicly sponsored programs.”

Butkovitz’s first deputy, Bill Rubin, says there’s an impression that the city hasn’t been able to adequately run its own retirement plans and so is not likely to be capable of running a multi-employer plan. “I think there’s a lot of misunderstanding and misinformation” about those funds.

But, he said, the city’s pension fund, particularly its plans set up in 1987 and 2016, are heading to good fiscal health based on changes made to investments, payouts, and worker contributions. Weighing down the entire fund is the 1967 plan, which promised a more generous payout to city workers. That plan has since been closed.

Because the proposed multi-employer plan would be voluntary, “it is critical to design and implement the program flawlessly,” the report said, stressing the importance of enlisting local opinion leaders as ambassadors.

Nancy Morozin, owner of the Dining Car and Market diner in Northeast Philadelphia and chairman of the Northeast Philadelphia Chamber of Commerce, might qualify.

She was among business owners who participated in focus groups conducted by the controller’s office. The office surveyed 200 small businesses last year and found that 92 percent of them would support a city-sponsored plan if it were voluntary. Of the 200 surveyed, 60 percent didn’t offer retirement savings plans. That number rose to 75 percent for companies with annual revenues under $1 million.

Morozin said she’d like to offer a retirement savings plan to her 100 employees. But “we can’t afford to do it,” Morozin said last year. “Our margins are too small. Our overhead is too high.”

And, she said, she doesn’t have the time or ability to manage a plan. “We don’t have the office personnel.”