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The Issue:
More than 2 million workers in our state lack an employer-provided 401(k) or pension plan.
Our Opinion:
A proposed Pennsylvania Treasury program to fill the gap is worth pursuing quickly.
There’s fiscal trouble ahead for those nearing retirement. And some, including the federal government, appear to be unprepared for it.
The latter was the clear message out of Washington last week.
The trustees who oversee Medicare and Social Security reported that the two programs are expected to exhaust their reserves by 2026 and 2035, respectively. They urged action from Congress, writing: “Lawmakers should address these financial challenges as soon as possible. Taking action sooner rather than later will permit consideration of a broader range of solutions and provide more time to phase in changes so that the public has adequate time to prepare.”
And the reaction in Washington? The usual combination of inaction and denial.
But in Harrisburg, a related piece of data — that an estimated 2.1 million people in Pennsylvania work for employers offering no retirement savings accounts or pension plans — found bipartisan support for a sensible fix. A task force set up by Pennsylvania Treasurer Joe Torsella, a Montgomery County Democrat, calls for the creation of a retirement plan for people without access to one at work. And legislation to make it happen has key bipartisan supporters.
As with Pennsylvania’s $5 billion 529 College and Career Savings Program, the retirement plan would be overseen by the Treasury Department and managed by a private contractor that would be paid from the plan’s earnings.
It would be open to employees in companies that provide no 401(k) or pension plan, and each employee’s account would travel with the employee from job to job. Yet to be worked out is whether such employers would be required to participate and whether employees would have to opt in or out. Pennsylvania lawmakers should strongly consider requiring employees to opt out of an otherwise automatic 2% to 4% contribution, money few would miss during their working years, since it is pre-tax, and that many would appreciate having after they retire.
And taxpayers would appreciate the gains as well. The cost of helping people without retirement savings is already a $700 million burden on Pennsylvania’s budget and, according to a report prepared last year for the Treasury Department, it is expected to jump to $1.1 billion by 2030.
Six other states have such plans. OregonSaves, which began in 2017 as a voluntary program for employers with 100 or more workers and has 76,500 employees enrolled and more than $17 million in assets, is a good model for Pennsylvania. Individuals can participate directly in OregonSaves and the plan is being rolled out to smaller employers in stages.
Pennsylvania can expect a crisis if people retire without savings: It has the fifth largest population over 65 in the nation, and its population aged 65 to 74 is expected to grow by 270,000 by 2025 to a total of 1.55 million.
Torsella summed up the best case for helping seniors without retirement savings plans to help themselves when he noted, “Over time, it will be financially self-sustaining. It won’t cost business owners one dime, or expose them to liability.”
State lawmakers should pass legislation creating a retirement savings program. Once it is adopted, participation in the fund should be promoted aggressively to individuals and businesses. Counting on Washington to keep Social Security solvent, after all, is looking like a poor choice, quite literally. And, given our state’s aging demographics, the time to act is now.