Almost half of employers nationwide are unable to offer retirement benefits to their employees, although many would prefer to do so. These benefits can be critical in competing for talent, and small-business owners want their workers to be financially secure. But many businesses can’t afford to start a retirement plan or don’t have the capacity to administer one.
In Pennsylvania, this means that as many as 2 million private sector workers cannot save through their workplaces. And that poses a large problem for both workers and taxpayers, the latter because of the increased social services for a population unprepared for retirement. The vast majority of Americans accumulate retirement savings through job-based plans. Making contributions consistently through payroll deductions is convenient and can add up to large account balances over time.
Pennsylvania is working toward a solution called Keystone Saves, a program that would help workers at smaller employers save for retirement—at no cost to the businesses. A broad bipartisan coalition of forward-thinking leaders, including Treasurer Stacy Garrity (R), Rep. Tracy Pennycuick (R-Montgomery), and Rep. Mike Driscoll (D-Philadelphia), have offered a bold and practical proposal.
Keystone Saves would address the state’s fiscal and retirement challenges by providing a basic retirement benefit that could help small businesses stay competitive. This important legislation (HB 2156), under active consideration in the General Assembly, should be enacted this year.
Keystone Saves would allow workers at private sector employers that do not offer a retirement program to make voluntary contributions from their paychecks into an individual retirement account (IRA). Known as auto-IRAs because workers are enrolled automatically—although they can opt out at any time—these programs are public-private partnerships with state oversight and private financial firm management. Ten states—California, Colorado, Connecticut, Illinois, Maryland, Maine, New Jersey, New York, Oregon, and Virginia—have adopted auto-IRA programs, and several others are considering them.
The Pennsylvania program would apply to businesses with five or more employees that have been operating in the commonwealth for more than a year. Employers’ only role would be registering for Keystone Saves and facilitating workers’ payroll contributions. Participating businesses would make no contributions of their own and would have no legal responsibility beyond making the regular paycheck deductions. Employers could opt out at any time by starting their own plan.
Auto-IRAs already have employer backing. A survey of Pennsylvania small businesses by AARP showed business support for a proposal such as Keystone Saves. Roughly three-quarters of those surveyed (74%) said they supported a retirement savings option. And 67% said they would likely provide a retirement savings option if one were available.
These results are not isolated to Pennsylvania. Pew surveyed small-business owners nationally in 2017, asking their opinion of a hypothetical auto-IRA program. Overall, 87% of those without their own company plan said they somewhat or strongly supported such an initiative, with 27% of them stating that they would be very supportive.
Pew’s survey coincided with the start of Oregon’s state auto-IRA, the first such program in the nation. OregonSaves now covers all private sector employers in the state that do not provide their own plans. Pew surveyed participating employers in 2019 and 2020 to assess their experiences with the initial registration and ongoing payroll contribution processes. Nearly 3 in 4 (73%) said they were either satisfied or neutral about the program.
Auto-IRAs charge businesses no fees, and in Oregon about 8 in 10 (79% of businesses surveyed) said that they had not experienced any related out-of-pocket costs. Eighty percent also said that they had heard only “a little” or “no questions at all” from their employees about OregonSaves.
Employers’ actions also reinforce the positive perceptions of a no-cost retirement benefit option and the eagerness to see one in place. In Oregon, 27% of participating employers signed up more than 90 days before their scheduled deadline. Similarly, California’s auto-IRA program, known as CalSavers, set a series of deadlines for employers for this year—based on size—to register if they did not have a retirement plan of their own. As of Feb. 28, more than 25,000 firms had registered at least four months before their June 30 enrollment deadline.
Why the demand? According to the AARP Pennsylvania survey, many employers want to offer retirement benefits: Among those that already offer a plan, 24% said that they see providing retirement benefits as a way to attract and retain workers, while twice as many (50%) said that they felt such a program was “the right thing to do” and that they wanted to “help employees save.” But leaders of firms without plans cited high startup costs (63%) as well as complicated processes (32%) and time-consuming administrative burdens (29%) as reasons for not offering such a benefit.
In Pew’s more recent Oregon survey, responses to an open-ended question reflect similar sentiments among employers about the benefits of auto-IRAs. Among the answers were:
- “It has been an easy and transparent method for our employees to begin saving for their future. As a very small business it has been so appreciated as other options seemed out of reach for us.”
- “It is great having a free option for savings for our employees. We eventually want to offer our own program, but this is nice for the time being.”
- “I do appreciate the program overall. It helps younger staff start saving early. From a small business that can’t afford to have a retirement plan it is a nice option for our team.”
Work by Pew and others has helped highlight that there is significant small-business support for a public-private partnership like the proposed Keystone Saves. Such a program can help employers facilitate a benefit at no cost that can help their workers build savings for a secure retirement.
John Scott directs The Pew Charitable Trusts’ retirement savings project.