The decline in retirement security is the result of many causes. The decimation of private-sector pensions, the stagnation of real wages and corporate cutbacks have all contributed to Pennsylvanians retiring with an uncertain future.
Nearly one-third of American households have nothing at all saved for retirement and the other two-thirds have inadequate savings. Pennsylvanians need a bold plan, a secure plan and a commonsense plan that puts working people and families first.
Right now, the legislature has an opportunity to address the unavailability of decent retirement savings vehicles for today’s working men and women. We can work in a bipartisan manner this year to help the 2.1 million Pennsylvanians who have been identified as being among the 40% of private-sector workers who do not have access to an employer-based plan.
Just last week, we reintroduced legislation to establish the Keystone Retirement Security Program in Pennsylvania.
When approved, Keystone Retirement Security will provide private-sector employees who do not have access to an employer-sponsored retirement plan, with the opportunity to save for retirement through automatic payroll deduction. Studies show that employees who are offered automatic paycheck deduction options to save for their retirements are more likely to participate than those who are left to save on their own.
Participants will have the chance to decide how much should be deducted from each paycheck.
Keystone Retirement Security will require employers with five or more employees (who do not already provide their employees with a retirement plan) to offer enrollment in the program. Workers also would be able to decline participation in the program, if they choose.
If they decide to save for their future, a small portion of their pay would be automatically deducted and deposited into an account managed by the state treasurer.
Treasury would manage the accounts just as it currently manages the successful PA529 college savings program. As we have seen with PA529 plans, Treasury is clearly capable of managing these accounts at a very low cost through economies of scale.
Keystone Retirement Security would be a fully portable Roth IRA account with no additional administrative burdens on employers or employees and it would present no cost to taxpayers.
In addition, Keystone Retirement Security would be a default option for employers that do not offer workers a tax-qualified retirement plan. This plan would solve several problems faced by workers today.
The National Institute on Retirement Security says the median retirement savings accounts of near-retirement households is only $14,500, but they will need 20 to 30 times that amount.
Worse, the institute says approximately 62% of working households age 55 to 64 have retirement savings less than one times their annual income.
Americans are retiring later in their lives than ever before. Hard-working families struggling to make ends meet have a very difficult time saving money for retirement. Americans who work hard and play by the rules deserve to be able to retire comfortably with the dignity and security they have worked so hard for.
So the real question is – do we have the political wherewithal to fix it?
Encouraging and facilitating greater retirement savings for Pennsylvania workers can reduce financial anxiety, ensure a more comfortable retirement for millions of workers, improve the economy by increasing retiree income, and ease future budget pressure by reducing demand for state services.
We cannot afford to ignore this growing retirement security crisis. This is why we are pledging to do what it takes to provide Pennsylvanians with the opportunity to be financially secure in retirement.
Hanna (D-Clinton), is the Pennsylvania House Democratic Whip. Driscoll (D-Phila.) sits on the Aging & Older Adult Services Committee.