Key Takeaways
Pennsylvania passed HB 577, a bill establishing Keystone Saves, in May 2023.
When implemented, most Pennsylvania employers will be required to offer an IRA or other qualified retirement plan.
Employers in Pennsylvania will most likely have options to comply with upcoming state mandates, including a 401(k) plan.
Approximately 33 percent of private-industry workers in the United States lack access to retirement programs through their employer—and with one in three full-time workers in Pennsylvania lacking access to retirement benefits, the Keystone State is no exception. With the recent announcement of its Keystone Saves program, however, Pennsylvania could join dozens of other states who have created a state-sponsored retirement plan in an attempt to close the retirement access gap in their state.
The Pennsylvania House of Representatives passed HB 577, a bill establishing Keystone Saves, on May 24, 2023. The program would allow most Pennsylvania employees to make automatic, regular payroll contributions to fund individual retirement accounts (IRAs).
Keystone Saves is designed to increase retirement benefits to the roughly two million Pennsylvania residents who lack access to a retirement plan through their employer. In Pennsylvania, the elderly population in the state is growing, with fewer working-age households. The Pennsylvania Independent Fiscal Office estimates there will be 57 households aged 65 and over for every 100 working-age households by the year 2030, an increase of nearly 50% from 2015. This demographic shift—combined with a retirement shortfall—is expected to cost the state $14.3 billion from 2015 to 2030.
Does your Pennsylvania business qualify for 401(k) tax credits?
Learn if starting a plan comes with tax incentives.
Overview of Keystone Saves
The current bill was introduced by Rep. Kyle Mullins (D-Lackawanna County) in March 2023. A previous version of the bill, HB 2156, was introduced in 2022, by Representative Tracy Pennycuick (R-Montgomery) and Representative Michael Driscoll (D-Philadelphia).
Pending passage of HB 577, implementation of Keystone Saves will go into effect no more than two years after being enacted. However, it’s worth noting that passing the state House does not guarantee it will be signed into law. For example, states such as Hawaii are currently in a stalemate in their attempt to agree upon the details of a state-sponsored retirement bill. For now, Pennsylvanian business owners and employees should keep an eye on the progression of this legislation (Human Interest is here to help!).
How Keystone Saves works for employers
Most Pennsylvania employers would be required to process a payroll deduction to an IRA and provide an employee count for participating employees—or offer a qualified retirement plan instead. The following employers would be exempt from the program:
Those with established retirement program,
Those with fewer than five employees, or
Those that have been in business less than 15 months
Contribution rates will default to 4% of participants’ gross wages, with an automatic annual increase of 1%, up to a maximum of 10% of gross pay. Like many current state-sponsored programs, Keystone Saves would be phased in based on employer size as follows:
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; and
Employers with 5-9 employees: No later than four years after the effective date.
The bill would require the Keystone Saves Advisory Board, which would be established by the legislation, to expand employer participation beyond those businesses the measure would initially cover, for example, allowing independent contractors, self-employed individuals and other employees who are not covered employees to voluntarily participate in the program.
How Keystone Saves works for employees
All employees would be able to opt out of Keystone Saves at any time. However, those who choose to participate would enjoy full account portability, meaning they could transfer their savings to an employer retirement account or other qualifying program and continue saving.
Participants would also have the option to
Select the rate of payroll deduction
Increase or decrease the deduction
Freeze the automatic increase in the annual deduction rate
Select one or more investment options from those offered, and update their selected investments at any time.
The potential impact of Keystone Saves
In its proposed form, Keystone Saves is a win-win for the state, as well as its employers and workers.
States with similar legislation have seen participation by 60 to 80 percent of eligible employees, with contributions of roughly $110 a month. The Pennsylvania Treasury estimates the projected fiscal burden of $14.3 billion could be avoided entirely if eligible households in the state contribute just $98 a month.
Many employers who do not offer retirement benefits cite start-up costs, and complicated investment decisions as reasons for not implementing a retirement plan. With the Treasury at the helm of Keystone Saves, employers in the state are spared the liability and expense of running their own programs.
Finally, some research shows that employees are 15 times more likely to save for retirement when they’re given the option at work, so having access to Keystone Saves regardless of their employers’ ability to host one makes it that much easier for Pennsylvanians to build a nest egg—potentially making the difference between a comfortable retirement or none at all.
Learn more about Pennsylvania Keystone Saves Retirement Program alternatives:
Use our calculator to see how much a 401(k) would cost with SECURE Act tax credits applied.
Read more about the fees associated with launching and maintaining a 401(k) plan for your business.
Is a 401(k) right for your Pennsylvania business?
While Keystone Saves looks like it will only offer IRAs, employers in Pennsylvania would have options in complying with any upcoming state mandates. Knowing your options can help you establish the right plan for your business needs.
While more information is needed to make conclusive recommendations, if Keystone Saves is like other state-mandated plans, there may be some advantages to choosing a 401(k) over the state-provided IRA program. Ultimately, when analyzing how to save for retirement, it’s important to compare Keystone Saves to your other available retirement accounts and confirm all investment fees and available services.
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Many Pennsylvania employees are in dire need of retirement options, and small businesses may be eligible for significant tax credits for instituting a qualified retirement plan. If you’re interested in attracting and retaining employees—especially in a state where the working population is declining—it may be time to explore your options for starting a 401(k) sooner rather than later.
For more information on state-mandated retirement programs—and retirement planning for small businesses in general—click on the links below.
Interested in starting an affordable, flexible retirement plan today? Get started here.
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The Human Interest TeamWe believe that everyone deserves access to a secure financial future, which is why we make it easy to provide a 401(k) to your employees. Human Interest offers a low-cost 401(k) with automated administration, built-in investment education, and integration with leading payroll providers.
