Flourtown, PA – Joe Torsella, Democratic Nominee for State Treasurer, is calling for Pennsylvania state government to address the retirement insecurity crisis by creating portable, individual retirement accounts for the 2 million Pennsylvania private sector workers with no access to workplace retirement plans.
“Individual retirement savings plans are a simple tool that helps both workers and small businesses,” said Torsella. “This is a no-brainer, and I’ll work with leaders in Harrisburg to have Pennsylvania join the growing list of states taking steps to solve the problem. We need to allow individual Pennsylvanians to build their own economic security. The failure to save enough—or save at all— is a struggle for all working families; however, there are real future risks for all of us if individuals do not have access to retirement savings options in the workplace. If state government sets the stage for accessible and automatic savings, we help mitigate those risks.”
Read the plan on Joe Torsella’s website here: www.joetorsella.com/pa-ira
Forty-Four percent working Pennsylvanians do not have any access to a retirement plan, according to the AARP. According to the U.S. Bureau of Labor Statistics, only 40 percent of private sector workers with wages in the lowest quarter of earners even have access to retirement programs through their employers or unions. The retirement savings gap disproportionately impacts both minority families and women. Women lag behind men with access and savings. According to the Economic Policy Institute, Hispanics lag significantly behind black, white, and Asian workers in retirement savings. Data shows that only 26% of Hispanic families had savings in a retirement plan or an Individual Retirement Account (IRA), compared to 41% of black families, 65% of white families, and 58% of Asian families. According to a recent PEW study, a majority of workers currently do not have a retirement savings plan through their employer, and less than 10 percent of all workers contribute to a plan outside of work.
All of this adds up to a crisis that will only deepen as more baby-boomers retire. With states across the country – including two states bordering Pennsylvania – taking steps to solve this problem, Pennsylvania state government can and should do the same.
Torsella said he would work with other stakeholders and leaders across the political spectrum to develop the Pennsylvania program, based on best practices and the most recent experience in other states, and would leverage the considerable experience of the Treasury Department to help create and manage the program. The range of possibilities includes a universal, automatic option – such as the Illinois and California models – to the looser “exchange” models, such as Washington, Maryland and New Jersey.
Any successful program, however, should include several key elements:
- Automatic Deductions: Automatic deductions with an employee opt-out, rather than opt-in programs, have been shown to dramatically increase participation.
- Low-fee: Study after study shows that investors benefit from simpler, low-fee investment options.
- Minimal Burden on Business: No fiduciary or contribution burden on employers: under a PA-IRA, employers should bear no fiduciary responsibility for employee accounts, should not be liable for employee investment decisions by employees, and should not required to make or match any contributions to the accounts themselves.
- Portability: PA-IRAs should follow workers from job to job, throughout their lives.
- Restricted to Retirement: PA-IRA balances could only be used for retirement, when the contributor would have access to their savings, comprised of the money they contributed and the investment interest and dividend earnings on the account.
- Broad Access: The best program will be the one that provides the widest access for the approximately 2 million Pennsylvanians currently without workplace savings accounts.
Torsella said that as Treasurer he would advocate for a “PA-IRA” program modeled on other states that have enabled automatic payroll deduction, with opt-out provisions, of retirement savings for private sector employees. Such plans do not require employer contributions, or create new liabilities for the state – they simply provide employees in workplaces with no 401K or pension plans the ability to have a percentage of their pay automatically directed to a retirement account. Workers’ savings are typically invested in simple, low-fee funds, administered by a public entity.
The initiative from Torsella is a continuation of policies his campaign has released to improve the financial lives and economic security of all Pennsylvanians throughout every stage of their lives. Torsella also released a plan to create automatic children’s savings accounts designated for college or vocational accounts for every child in Pennsylvania.
Background
About Illinois Secure Choice: Pass in 2015, Illinois requires employers with 25 or more workers who do not already offer their employees a retirement plan to automatically enroll their workers aged 18 and older in a state-run payroll-deduction Roth Individual Retirement Account (Roth IRA). The Act applies to both for-profit and non-profit employers, and is also open to employers with fewer than 25 workers who wish to participate on a voluntary basis.
Employees will select how much to contribute, though their contributions cannot exceed the current maximum annual contribution limits for Roth IRAs ($5,500 for workers under age 50 and $6,500 for those older). Employees will pick their investment options from a menu of choices established by a seven-member board, which will oversee the program. Employees in the program who fail to select investments will be automatically enrolled at a contribution rate of three percent of pay, and their contributions will be invested in a life-cycle fund that automatically becomes more conservatively invested as they age. Workers must pay income tax on any money contributed to Roth IRAs, but, once the worker retires, he or she can withdraw money from the account tax-free. Employees are allowed to opt out at any time. [Pension Rights Center]
About California Secure Choice: Passed in 2012, California will eventually require that all businesses with five or more employees that do not already offer a retirement plan enroll them in a new type of savings plan based on IRAs. California Secure Choice accounts differ from IRAs in several ways. The new system’s investments would be professionally managed by the California Public Employees’ Retirement System or another contracted organization. Employees would be automatically enrolled in the plan and would contribute about three percent of their wages through payroll deduction, although they could opt out of the plan. A modest benefit would be guaranteed through underwriting by private insurers, not by taxpayers. Employers would not have any fiduciary liability involving the fund; they are only required to assist their employees by permitting them to use their payroll-deduction systems to make retirement fund contributions.To date, the State has established the California Secure Choice Retirement Savings Investment Board and the California Secure Choice Retirement Savings Trust, as required by the statute. [Pension Rights Center]
About Washington’s Small Business Retirement Marketplace: In 2015, Washington created the state’s Small Business Retirement Marketplace, which will be designed and managed through the state Department of Commerce. It is a voluntary program between the private suppliers of financial programs and private-sector employers. Employers with fewer than 100 workers, as well as the self-employed and sole proprietors, will be eligible, though participation will be voluntary for employers and workers. The director will promote the program through a website and electronic marketing materials. The marketplace also must offer the federal myRA, a new savings program for workers without a plan at their workplace. [Georgetown University Center for Retirement Initiatives, Washington]