The Keystone State is moving closer toward a state-run retirement plan.
House Bill 577, a measure that would establish the Keystone Saves Program and an automatic enrollment payroll deduction IRA retirement savings program, was passed last week by the Pennsylvania House of Representatives.
HB 577 passed by a 106-95 vote and now moves to the Pennsylvania Senate for consideration.
Each of the 101 Democrats in the House voted for the bill, along with five Republicans. The legislation was introduced by Rep. Kyle Mullins, D-Lackawanna, on March 20 and approved by the House Commerce Committee on May 3.
The measure would provide coverage for private sector employees whose employers do not offer a retirement plan. It would create the Keystone Saves Program Fund, the Keystone Saves Administrative Fund, and the Keystone Same Program Advisory Board. It would also address the duties and powers of the Pennsylvania Treasury Department in relation to the program.
Mullins remarked in the May 1 Commerce Committee hearing that the bill would not replace employees’ ability to locate additional options to invest in their retirement, “but it will start them on a path to learning more about saving for retirement.”
Rep. Marla Brown, R-Lawrence, was among those casting a “no” vote for the Keystone Saves Program.
The subcommittee chairperson for local business under the House Commerce Committee, Brown said the bill would further damage small businesses still suffering from the pandemic and inflation by establishing unnecessary mandates.
“This legislation would make it harder to do business in Pennsylvania,” Brown said in a statement. “Employers would be required to prove if they have an existing retirement savings program and are responsible for registering new employees.
“Businesses must manage certain portions of the program, including varying contribution percentages, workers’ anniversaries, and tax filings. In addition, they could be subject to penalties should they not be able to keep up with the demands of the new program.”
Brown said that under the bill, any business that employs more than five people must comply. She added that according to the National Federation of Independent Businesses (NFIB), 84% of Pennsylvania’s small businesses oppose the measure.
“An alternative would have provided tax credits to companies that provide private retirement plans to their employees,” Brown said. “This would have helped to ease the burden on employers by removing mandates while incentivizing retirement savings without government penalties.”
Andrew Remo, Director of Federal and State Legislative Affairs for the American Retirement Association (ARA), said his organization favors the bill.
“Data shows that private sector retirement plan adoption rates increase in states that have fully implemented an auto-IRA program with a retirement plan coverage requirement like the Keystone Saves Program,” said Remo. “The Keystone Saves Program will complement, not compete, with the private sector and ARA urges its prompt enactment into law.”
Employees participating in the Keystone Saves Program would be enrolled automatically unless they opt out. Regular deductions would be taken from a participant’s gross wages and put into the participant’s program account.
Covered employees could also choose from the program’s investment options and could change their investment option at any time. If a participant does not select any investment option, deductions from a participant’s gross wages will be invested in a default option established by the Treasury Department.
The default payroll deduction rate would be 4% of gross wages. The bill provides an automatic increase of the deduction equal to 1% of annual gross wages, up to a maximum of 10%.
Participants would be able to select the rate of payroll deduction, increase or decrease the deduction, and freeze the automatic increase in the annual deduction rate.
The Keystone Saves Program Advisory Board, which would be part of the Treasury Department, would be composed of the following members:
- the Governor, or a designee.
- the State Treasurer, or a designee.
- four members, who would serve a term of four years, one each appointed by the President pro tempore of the Senate, the Speaker of the House of Representatives, the Minority Leader of the Senate; and Minority Leader of the House of Representatives.
The State Treasurer, or a designee, shall serve as chairperson of the board.
The bill states that no later than 24 months from the effective date the legislation is enacted, the Treasury Department would be required to begin implementing the program and allow a participating employer to register with it.
Registration would be phased in by employers according to their number of employees:
- Employers with 100 or more employees: no later than two years after the effective date.
- Employers with 20-99 employees: no later than 30 months after the effective date.
- Employers with 10-19 employees: no later than three years after the effective date.
- Employers with 5-9 employees: no later than four years after the effective date.
The department may delay implementation for up to one year if it determines that would be in the program’s best interests.