Pa. should offer savings program to private sector

A study by the Employee Benefit Research Institute found that 62 percent of employees with a retirement plan had more than $25,000 in total savings and investments, and 22 percent had $100,000 or more. However, only 6 percent of those without access to such a plan had more than $25,000 saved, and only 3 percent had $100,000 or more. Nearly six in 10 Americans don’t have enough savings to cover a $500 or $1,000 unplanned expense, according to a 2017 report from Bankrate.

Americans don’t save. In fact, most are one emergency away — a busted hot water heater, a leaky roof, a blown transmission, a medical issue — from real financial trouble.

One in five Americans don’t save any money at all, according to Bankrate. Why is this? According to an April marketwatch.com survey, 38 percent said they had too many expenses, some of which may or may not be under their control. The second reason, given by 16.4 percent of the respondents, was that they simply didn’t get around to it. The third and fourth reasons — about 16 percent said they don’t make enough money, and 13 percent said they were struggling with debt.

In a Dec. 2 op-ed for LNP, Bill Johnston-Walsh, state director of AARP in Pennsylvania, proposed what we believe is a sound idea — a state-run automatic payroll deduction retirement savings program for private-sector employees.

As Johnston-Walsh points out, the proposal does not guarantee monthly income or rate of return. “It’s simply a tool to facilitate individuals saving privately, and it won’t create longterm liability for state government.” he writes.

Why should the state get involved? After all, private-sector employees can set up their own retirement accounts.

That’s true, but they don’t do it. Only about 1 in 20 workers will open a retirement account on their own and, as JohnstonWalsh writes, they are 15 times more likely to contribute to a retirement account offered by an employer.

This proposal makes sense for a number of reasons.

It encourages people to save, and it gives them the mechanism to do so.

It’s a win for companies, especially small businesses that don’t have the resources to set up their own retirement plans.

And, as Johnston-Walsh writes, “the fact is when workers set aside money for retirement, they are less likely to rely on public assistance programs later in life, saving significant taxpayer dollars for programs like Medicaid, Supplemental Security Income, the Supplemental Nutrition Assistance Program and housing assistance.”

This type of state-run plan is already up and running in Oregon. Eight other states have proposals on the table.

In Pennsylvania, there is — believe it or not — bipartisan support for such a plan; and bills have been introduced in both the House and Senate. The words “bipartisan” and “support” rarely appear in close proximity when talking about state legislation so we’re encouraged.

We would urge the General Assembly to seriously consider establishing Pennsylvania’s first state-based retirement savings plan.

As Johnston-Walsh writes, the plan is really a variation of the Pennsylvania 529 college savings plan, which is now among the most popular ways to save for a child’s education.

When you consider some of the numbers, encouraging individuals and families to save money for the future can only be a good thing.

According to a Federal Reserve study, nearly half of Americans would struggle to cover a $400 expense in an emergency.

That’s a razor-thin margin of error.

True, offering Pennsylvanians a plan to save money doesn’t mean they’ll participate. And it’s also true that some will continue, by choice, to walk a financial tightrope of their own making.

But Johnston-Walsh is correct in nudging today’s workers and Pennsylvania to think about the future.

“If lower income retirees were able to increase their retirement incomes by as little as $1,000 a year, Pennsylvania could save $330 million on public assistance programs between 2018 and 2032,” he writes.

For some, 2032 might seem a long way away. It’s not, and now is the time to consider what the future will look like. As Yogi Berra once said, “It’s getting late early.”