Pennsylvania may be the next state to propose automatic-savings plans for workers, according to the treasurer, Joseph Torsella.
Large numbers of Pennsylvanians are unprepared for retirement, and insufficient savings will affect their own lives and the state budget, Torsella said Thursday at a news conference in Harrisburg.
The aging commonwealth has the fifth largest population over 65 in the United States. The number of seniors in Pennsylvania – defined as people aged 65 to 74 – rose by 303,000, or 31 percent, between 2010 and 2017. That number will increase by 270,000 by 2025, for a total of 1.55 million seniors in Pennsylvania.
“The auto IRA is a common sense solution” to the savings crisis, Torsella said, and “has deep and bipartisan roots. Six other states have it, and 20 states are contemplating this in 2019.”
“Over time, it will be financially self-sustaining. It won’t cost business owners one dime, or expose them to liability,” he said.
Such a plan would automatically enroll anyone who doesn’t already have a retirement plan through work. No details were available on how much would be deducted from paychecks.
Any savings program would be administered by Treasury, similar to 529 college savings accounts, or ABLE accounts for Pennsylvanians with disabilities. This new effort would be run by private-sector vendors, the report said, and there’s no information yet on what the fees would be.
Sponsors for auto-IRA bills would likely include Art Haywood (D., Montgomery) and Pat Browne (R., Lehigh) in the Senate and Mike Peifer (R., Pike) and Michael Driscoll (D., Philadelphia) in the House, according to a Treasury spokesman, although no formal legislation has been put forth yet.
"We hope to be back in a few months to announce passage” of auto-IRA legislation, Torsella said. He also didn’t specify which private firms might run the auto-IRA program.
New Jersey this year proposed “portable” IRAs, or individual retirement accounts. In late February 2019, the New Jersey General Assembly passed legislation to create the auto-IRA retirement savings program in the state, following the model adopted by other states. The bill is expected to be signed by Gov. Phil Murphy.
States with an automatic-IRA (auto-IRA) include California, Connecticut, Illinois, Maryland and Oregon.
Another option is multiple-employer plans (MEPs), such as the Vermont Green Mountain Secure Retirement Plan, enacted in 2017. The Vermont plan is voluntary and only employers with 50 or fewer workers are eligible. Once the employer opts in, all employees will be automatically enrolled with the ability to opt-out. The plan will be open for self-employed workers such as contingent workers, gig workers, and independent or contract workers.
Some good news: Pennsylvania has slightly higher retirement balances than the national average.
The average account in Pennsylvania has close to $41,000, or about $10,000 more than the national average. That still falls significantly below the recommended eight times annual income for a comfortable retirement, per the U.S. Census Bureau 2013-2017 American Community Survey. The commonwealth’s average annual household income is about $78,000.
The Pennsylvania Treasury Department Private Sector Retirement Task Force projects that financially unprepared retirees will demand social services costing Pennsylvania an additional $14 billion between the years 2015 and 2030. A copy of the report is available online here: www.patreasury.gov/pdf/retirement/Retirement-Hearings-Report.pdf.
More than 2.1 million Pennsylvanians work for employers that do not offer retirement plans. More than 500,000 are in companies with 50 to 499 employees; 703,000 more work for businesses with 500 or more employees, the task force found.
“We have an aging population. In 2020, one quarter of Pennsylvanians will be 65 or older. That’s next year,” Haywood said at the news conference. “And this isn’t just for older adults, it’s for millennials, who are stuck deep in student debt. They need retirement planning, too.”
Researchers at Pew Charitable Trusts found that access varies widely by industry, with fewer retirement options offered in construction, retail, leisure, and hospitality. Part-time workers are less likely to have access, meaning women – who work part time more than men – are affected more. In addition, minorities have less access to workplace plans than white workers. Fifty percent of blacks and 56 percent of Hispanics do not have workplace retirement benefits, compared with 42 percent of white non-Hispanic workers.
Nationally, almost half of Americans approaching retirement have nothing saved. The good news is that the new estimate, from the U.S. Government Accountability Office, is slightly better than a few years ago.
Of those 55 and older, 48 percent had nothing put away in a 401(k)-style defined contribution plan or an individual retirement account, according to a GAO estimate for 2016. That’s down from the 52 percent without retirement money in 2013.