Talk of state-run retirement plan fizzles
Despite a flurry of activity earlier in 2018, Pennsylvania is unlikely this year to adopt a state-run retirement savings program for private-sector workers.
About 2.1 million Pennsylvanians lack access to a retirement plan in the workplace, such as a 401(k) or traditional pension.
A task force led by State Treasurer Joe Torsella, a Democrat, held several hearings on the issue over the winter, but legislation failed to gain traction in the Republican-controlled General Assembly this year. The current legislative session is coming to a close this fall.
Nonetheless, Torsella’s office is optimistic that a plan could move in the next legislative session, which will start in 2019.
The most-discussed option for Pennsylvania has been an individual retirement account, or IRA, with automatic enrollment for workers who lack access to an employer-sponsored plan. Other states, like Oregon, have adopted the plan.
Most employers that do not offer a retirement plan would be required to participate in the auto-IRA. Auto-IRA plans feature automatic payroll deductions. The amount can vary but often starts around 3 percent. The money would be sent to portable retirement accounts, typically managed by the state.
A Pennsylvania House bill favoring the auto-IRA option was introduced in early 2017 but has not moved out beyond the committee level. A proposal circulated for co-sponsorship in the Senate has not been formally introduced.
Nearly three out of four small-business owners in Pennsylvania said they do not offer a retirement plan to their employees, according to a survey this year by AARP Pennsylvania.
More than 60 percent of the 454 employers surveyed said they don’t offer plans because they believe they are too costly.
AARP, which was part of the treasurer’s task force, said the majority of small business owners surveyed — about 88 percent — believe government should help workers save for the future.
Proponents of a state-sponsored retirement plan say it would help employers compete for employees and retain talent. It also could reduce worker reliance on public assistance programs, covering services such as medical care, housing and transportation.
Midstate retirement consultants agree on the need to discuss retirement savings, but they aren’t keen on seeing government involvement. Some companies may see it as a state mandate.
In fact, some consultants say that more businesses they work with are trying to not only offer a retirement plan on their own, or boost their benefits in a rising economy, but also add more financial wellness education programs to help employees with budgeting and long-term planning.
“I’m not big on the government getting involved. I would rather see companies offer a great plan,” said Joe Wirbick, president of Sequinox, a financial planning firm based in Lancaster.
In a bid to attract and retain employees in a tight labor market, many companies have restored or increased the contributions they make to employee retirement accounts, consultants said. Wirbick said employee retention is a major driver of higher employer contributions.
In addition, some companies have implemented policies for automatic enrollment and annual contribution increases to persuade more people to save for retirement.
“It’s not 2009 now. It’s becoming difficult to hire quality people,” he said. “It’s much cheaper to retain than hire new.”
Other companies are looking at establishing financial wellness programs and making financial advisers and personal finance tools available to employees. The goal is to provide regular information on budgeting and offering one-on-one attention from advisers to help employees get a handle on their long-term financial goals.
“Most of that is not being generated by employees, who tend to be quiet on their needs,” said Anthony Conte, managing partner at Conte Wealth Advisors in Camp Hill. “Unless someone is in front of them, they don’t know to expect education.”
Such benefits can help companies retain employees, Wirbick and Conte said.
“In the end, if you don’t care about people, they can tell,” Conte said. “They will choose not to work with you.”
Tom Smith, who owns Anderson Pharmacy in Denver, Lancaster County, said he doesn’t think a lot of employees use the financial tools available to them, but he still believes it’s important to provide the information.
Smith has eight employees, including six part-time employees. He offers a 401(k) plan to everyone that works at least 1,000 hours per year. The company match is 100 percent on the first 3 percent of deferred compensation and then 50 percent on the next 2 percent.
Smith also has been able to offer profit sharing three times during the five years he has owned the small business so far.
He believes the benefits and other financial advice that employees can sign up for through his retirement program have helped retain workers. He is not a fan of having the state government get involved.
“I’m fortunate,” he said. “Most of my employees are 40 and over and can see their retirement goals. They want to stay because of the added benefit of the retirement plan.”