Approximately 32% 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 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.
A bill that would establish Keystone Saves is currently being considered by the state (although nothing has been passed as of December 2021). 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 roughly two million Pennsylvania residents who lack access to an employer-provided retirement plan. 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.
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Overview of Keystone Saves
In December 2021, Pennsylvania Treasurer Stacy Garrity, Representative Tracy Pennycuick, and Representative Michael Driscoll announced the upcoming introduction of a bill that will create Keystone Saves. The program would be created by House Bill 2156, which Pennycuick plans to formally introduce following the announcement.
Pending passage of HB 2156, implementation of Keystone Saves will go into effect after two years. However, it’s worth noting that simply introducing state-sponsored retirement legislation does not guarantee it will pass. For example, states such as Hawaii have been unable to pass legislation stemming from disagreement 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
Although final details were still pending as of the end of 2021, according to the Pennsylvania Treasury, 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
All other employers would need to process a payroll deduction to an IRA and provide an employee count for participating employees. All other administrative functions would be carried out by the State Treasury and a third-party vendor.
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.
Ultimately, we may not see rollout of the program until 2025. Implementation of the program is slated to take four years, with the first two of those dedicated to set up by the State Treasury, including the search for a third-party administrator and a voluntary pilot.
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.
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.
Similar state-sponsored programs 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.
Is a 401(k) right for your Pennsylvania business?
Similar to other state-sponsored retirement programs, Keystone Saves could include 401(k), SEP-IRA, or Simple IRA plans as qualified savings plans. This means that employers in Pennsylvania may have options to comply 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.