Senate: Pass Keystone Saves
While Harrisburg politicians continue to dither over the finalization of the 2023- 2024 budget (Gov. Josh Shapiro’s 2024-2025 budget address is only three months away), the Pennsylvania Senate has an opportunity to present the governor with a popular, bipartisan piece of legislation: the Keystone Saves Program.
The Post-Gazette Editorial Board, along with a consortium of organizations including the United Way and the Pew Charitable Trusts, has long supported Keystone Saves, which would enroll Pennsylvania workers who do not have access to an employer 401(k) or equivalent in a staterun retirement plan. The enabling legislation, H.B. 577, has passed the state House, and is awaiting action in the Senate.
Keystone Saves would increase access to tax-advantaged retirement savings; help to close inequities in retirement savings across class and racial lines; enhance the competitiveness of small firms who currently can’t afford the time and expense of managing employee 401(k) plans; and, in the long-run, save taxpayer money by reducing the burden on social services for retirees.
A 2023 study from the federal Government Accountability Office shows that, in 2019, 75% of high-income households had access to employer-managed retirement accounts, compared to only 23% of low-income households. And while 63% of white households had a positive balance in retirement accounts, only 41% of nonwhite households had any money at all socked away.
Perhaps most discouraging of all, the percent of the lowest-income households with any retirement savings at all has decreased from 21% in 2007 to under 10% today. In other words, the divide in retirement savings is widening, and quickly.
The Keystone Saves would be free for small employers, who would only have to provide a list of participating employees to the state and process a simple payroll deduction. Keystone Saves would do the rest, putting the money into a simple, portable IRA for workers. While everyone can, in theory, open and fund and manage their own private IRA, participation jumps exponentially when an employer does it automatically.
A recent Pew study of Pennsylvania small businesses revealed that one-half of the state’s small businesses feel they can’t afford the costs associated with traditional retirement plans, and two-thirds doubt their ability to manage one effectively. Three-quarters favor a system like Keystone Saves to give them an automatic state-managed system, which would help them compete with bigger firms for talented employees.
It’s important to say that Keystone Saves will not incentivize companies to drop their 401(k) plans: Firms that do so will be ineligible for the program. Further, the existence of Keystone Saves will only encourage companies that can afford them to enhance their retirement offerings, to compete with the more bare-bones state-run program.
The coming retirement savings shortfall, which will leave older Americans increasingly dependent on government-funded services, is projected to cost state and local governments over $1 trillion through 2040, and nearly $20 billion in Pennsylvania tax dollars alone.
To reduce inequality and increase economic security; to help small business compete; to save taxpayer money: There’s every reason for the Senate to pass Keystone Saves.