Can Keystone Saves bill rescue Pa. from fiscal cliff?

Financial security in retirement is important for all Pennsylvania taxpayers, and especially for Pennsylvanians aged 65 and older. But what happens when residents do not have enough money for retirement? 

Such is the dilemma facing Pennsylvania as the state seeks to deal with a looming fiscal crisis – “a fiscal cliff,” Pennsylvania State Treasurer Stacy Garrity called it – created by insufficient retirement savings. 

An online seminar addressing the impact of insufficient retirement savings on Pennsylvania’s fiscal health was hosted recently by Garrity and John Scott, project director for retirement savings for The Pew Charitable Trusts. Information in the online seminar was based on analysis prepared for the Pew Charitable Trusts by Econsult Solutions, Inc. (ESI), an economic consulting firm. 

ESI provided a 2018 analysis of economic and fiscal impact of insufficient retirement savings in Pennsylvania from 2015 to 2030 for the Pennsylvania Treasury Retirement Savings Task Force. Subsequent analysis of county-level impacts was undertaken by ESI for Pew in 2020. ESI’s report updates findings of statewide impacts of insufficient savings to cover the period from 2020 to 2035. 

According to ESI’s findings, Pennsylvania’s elderly population is expected to grow by more than 550,000 in the next 15 years, increasing from 19% to 23% of PA’s population. The share of Pennsylvania households headed by an elderly resident is expected to increase from 30% in 2020 to 36% by 2035. Pennsylvania’s dependency ratio is also projected to increase from 43 households aged 65 and older for every 100 working-age households in 2020 to 56 households aged 65 and older in 2035. 

As working age households are major drivers of tax base, the change in ratio creates fiscal pressure. The reason being there will be fewer taxpaying households age 20-64 to support an elderly population that is projected to grow from 2.49 million in 2020 to 3.04 million in 2035. 

“There is a growing share of older people, older households in the Commonwealth, but the tax base that’s supporting a lot of the programs that support the elderly has not grown as quickly,” Scott said. “So that’s going to be placing more stress on taxpayers in Pennsylvania.” 

How much stress was revealed by Garrity, who noted that two million Pennsylvanians, approximately 44% of the state’s private-sector workforce, cannot save for retirement at work. The resultant cost to taxpayers, she said, is more than $1 billion annually. 

“I really want to emphasize this point,” Garrity said. “Pennsylvania taxpayers are footing a bill of more than $1 billion per year to account for unprepared retirees. That includes costs for social services and lost revenue.” 

Garrity added that research conducted by the Independent Fiscal Office confirms that Pennsylvania will reach a fiscal cliff by Fiscal Year 2025-26. 

“Common sense says we should prepare for it now,” said Garrity. “And here’s another fiscal challenge for Pennsylvania: The research we’re discussing shows the retirement savings crisis will cost Pennsylvania a total of $17.8 billion through 2035. So that’s the scope of the problem.” 

The problem having been defined, what’s the solution? Garrity and Scott said one way to address the retirement savings crisis is to implement a simple, business-friendly plan to help working Pennsylvanians save for retirement. Not a government handout, Garrity emphasized, but a program that makes it easy for people to save for retirement. 

“The goal,” she said, “is to make it easy for people to save their own money.” 

In December 2021, Garrity and Rep. Tracy Pennycuick (R-Berks/Montgomery) and then-Rep. Michael Driscoll (D-Philadelphia) announced the introduction of “Keystone Saves”, a retirement-savings program for Pennsylvanians who do not have access to retirement savings through their employer. 

As is the case with automated savings programs across the country, Keystone Saves would enroll employees automatically in a voluntary individual savings account (IRA) to which they can use direct deposit to make regular contributions. 

Estimated to help Pennsylvania reduce state spending by close to $1 billion annually, Keystone Saves is supported by The Pew Charitable Trusts, the Pennsylvania Institute of CPAs, the American Association of Retired Persons (AARP), the United Way of Pennsylvania, the Pennsylvania Health Care Association, the Pennsylvania Association of Sustainable Agriculture, and members of the state’s General Assembly. 

As many employers are unable to provide retirement savings due to administrative capacity and high startup costs, state automated savings programs are seen as a practical solution to provide savings opportunities to workers who lack them. 

Scott noted that 12 states in the U.S. have enacted legislation creating such programs, and programs in six states are operational. Participants in state-sponsored automated savings programs have an average annual savings of $1,500 to $2,000. 

“These programs are showing this can be done,” said Scott. “This is a very feasible and practical solution.” 

The Keystone Saves bill has received bipartisan support in the Pennsylvanian legislature but has yet to pass. As Gov. Josh Shapiro is a Democrat who stresses bipartisanship, the opportunity exists to work with Garrity, a Republican, to guide the bill through the legislature. 

“The time to solve this problem,” Garrity stated, “is now.”

Proposed legislation would help Pennsylvanians save for retirement

State legislators propose a bill that would establish Keystone Saves, a retirement savings program. PHOTO/SUBMITTED –

The American Association of Retired Persons threw its support behind legislation proposed in Pennsylvania Monday that would help people save for retirement. 

State Treasurer Stacy Garrity, Rep. Tracy Pennycuick, R-Harleysville, and Rep. Michael Driscoll, D-Philadelphia, announced the planned introduction of a bill to create Keystone Saves, a retirement savings program for Pennsylvanians who do not have access to retirement savings through their employer. 

“We commend these lawmakers for sponsoring this crucial legislation,” said Joanne Grossi, AARP Pennsylvania state president. “America’s retirement savings crisis is already causing too many families to fall short. Our state lawmakers have a chance to act now to help more Pennsylvanians build a secure financial future by enacting Keystone Saves.” 

Grossi noted that over 2.1 million Pennsylvanians don’t have access to a retirement savings plan through their employers and more than a quarter of American households have no retirement savings. At this rate, half of middle-class retirees will be unable to afford their basic needs in retirement – things like medicine, utilities and rent. 

Previous AARP research found that Americans are 15 times more likely to save for retirement when they can do so at work and are 20 times more likely if their workplace savings plan is automatic. Keystone Saves will give more workers the chance to save automatically out of their regular paycheck. 

“Retirement security is a big problem,” Rep. Driscoll said. “Right here in Pennsylvania, 44% of our workers do not have a defined benefit program or an IRA in the places where they work. And we have the ability to change that with Keystone Saves. Pennsylvania is facing what some call the ‘Silver Tsunami,’ so ignoring this issue is simply not an option. Failing to address this problem would have devastating effects for future retirees and the financial wellbeing of the state as a whole.” 

Keystone Saves was designed to be business friendly, he said.  

Employers simply provide a census of employees and process a payroll deduction for each employee who participates. All other administrative and backend functions will be handled by Treasury and a private-sector third-party vendor, much like the PA 529 College and Career Savings Program.  

Keystone Saves protects employers from liability concerns and removes high start-up costs and complicated investment decisions that keep many employers from providing retirement benefits.  

Keystone Saves will be phased in over four years. The first two years are set aside for the Treasury to set up the program, including an RFP process, and to implement a voluntary pilot.  

Employers with fewer than five employees, and those who have been in business for less than 15 months, are excluded from Keystone Saves, as are employers with already established retirement savings plans. 

House Bill 2156, prime-sponsored by Rep. Pennycuick, will be introduced in the coming weeks.  

Ten other states have enacted similar legislation.