Study: Retirement savings shortfall crimping Pa. finances
Many Pennsylvania workers are saving too little for retirement and the shortfall could end up hurting the commonwealth's bottom line.
An independent study commissioned by the Pennsylvania Treasury found that insufficient retirement savings led Pennsylvania to spend an estimated $702 million more in 2015 on public assistance programs, covering services such as medical care, housing and transportation, while losing about $70 million in tax revenue.
The shortfall was attributed largely to the lack of employer-sponsored retirement plans. An estimated 2.1 million Pennsylvania workers don't have a way of saving for retirement where they work.
Without legislative changes, those added state costs are projected to grow to $1.1 billion in extra public assistance spending and $106 million in lost revenue in 2030, according to the study, conducted by Philadelphia-based Econsult Solutions Inc. It was released Thursday at a hearing held by the Treasury's Task Force on Private Sector Retirement Security.
State Treasurer Joe Torsella, who spoke with the Business Journal recently about retirement concerns in Pennsylvania, has said he hopes to see a legislative fix this year.
"There had been legislative proposals and I think the authors are waiting to see what the task force covers," he said.
A final hearing is slated for Feb. 14, where recommendations to improve retirement savings in Pennsylvania are expected, according to the Treasury. One recommendation could be for employers to automatically enroll workers in 401(k) defined-contribution plans, and allow them to opt out later.
"I think there's an appetite on a bipartisan basis to do something," Torsella said. "So I am hopeful that there'll be some action in 2018."
Econsult's report suggests that state costs for public assistance programs will go down if households are able to put more money away for retirement. Older people also would spend more on goods and services, which could drive more job growth and boost overall tax revenue.
The firm was not tasked with coming up with solutions.
As Pennsylvania's population gets older and it struggles with annual budget deficits, now is the time to act, Torsella said.
"We can find a commonsense solution for Pennsylvanians to save now, or we can pay a steep price in increased budget deficits and lost economic activity later," Torsella said.
Pennsylvania already has one of the oldest populations in the country. And its 65-and-older demographic is expected to grow to 3.1 million by 2030, or about 23 percent of the state's population.
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