Keystone Saves retirement plan should be back on the table in Harrisburg
During this extended period of high inflation and market volatility, people joke grimly that they don’t want to open the envelope with their 401(k) statements. But not every one can make the joke. Nearly half of American workers, including 2 million Pennsylvanians, don’t have statements to open because their employers don’t offer retirement accounts.
They need them, and the commonwealth can provide them. A bipartisan plan to create an automatic, state-managed retirement program for these workers, called Keystone Saves, should be returned to the legislature, and passed, early this session.
A new study commissioned by the Pew Charitable Trusts has quantified the financial costs for Pennsylvania: nearly $15 billion in taxpayerfunded services between 2020 and 2035 that would not be necessary if everyone had sufficient savings. The average annual shortfall is $7,800 per household with members 65 or older.
To cover this retirement savings gap, workers need to sock away an additional $160 per month — exactly the kind of prudence Keystone Saves would facilitate. Many families find that getting the money to save is hard.
When workers don’t have access to a 401(k) or the nonprofit equivalent, a 403(b), the responsibility is entirely on them to create, fund and manage an individual retirement account (IRA) — something few people have the time, expertise and discipline to do effectively. The AARP reports that people are 15 times more likely to save for retirement when they can do so through automatic paycheck deductions. In other words, lack of access to simple retirement savings options is a major driver of the retirement savings shortfall.
The Keystone Saves program would make the program automatic for all workers without employerprovided plans, with an opt-out provision. This would maximize the number of people it would help.
The program wouldn’t just benefit workers. It would also help small businesses and other small employers that don’t have the resources to manage a 401(k) plan of their own. Keystone Saves would reduce these organizations’ competitive disadvantage by allowing them to offer an automatic retirement savings plan.
At the same time, the program wouldn’t create an incentive for companies to drop their own retirement plans in favor of Keystone Saves. It wouldn’t be open to companies that drop their plans — and employers will still be able to entice potential employees with more generous company-match policies.
Previous versions of the Keystone Saves bill have received bipartisan support, but without a final push from dedicated legislators and the governor’s office, it never got to the finish line. Getting it there would be another bipartisan feather in Gov. Josh Shapiro’s cap, as he works with Republican State Treasurer Stacy Garrity to guide the proposal through the legislature.
There’s no time to waste: Pennsylvania isn’t getting any younger, and the retirement shortfall is only growing. The Pew study reports that the ratio of older to younger households in the commonwealth is projected to increase by nearly 30% by 2035. The time to aid workers saving for retirement is now — and Keystone Saves would make that much easier for