Voters in Philadelphia passed a ballot measure on Tuesday that will create the country’s first city-run savings program for workers whose jobs don’t offer retirement benefits.
The measure will create a new program called PhillySaves that allows private sector workers whose employers don’t sponsor retirement plans like a 401(k) to automatically enroll in individual retirement accounts (IRAs) set up by the city.
Participation in PhillySaves is voluntary and allows workers to opt out of enrolling in the auto-IRA or change how much they’re contributing out of their paychecks at will.
The accounts will also follow workers to future jobs, and workers can withdraw contributions early if needed on a tax-free basis – though any gains or interest withdrawn would be subject to tax.
NEARLY HALF OF GEN X WORKERS ARE DELAYING RETIREMENT AS RISING COSTS, STAGNANT WAGES DRAIN SAVINGS
An estimated 208,000 private sector workers in Philadelphia will be able to enroll in PhillySaves. Many such workers are in the service industry with higher employee turnover or are employed by small businesses that would face compliance burdens in establishing and maintaining a retirement plan.
The program also doesn’t charge businesses who are registered in the program to enroll their employees.
PhillySaves will be managed by a third-party firm overseen by the Philadelphia Retirement Savings Board created under the initiative. Pew estimates that the program will cost the city up to $1 million initially and around $500,000 annually in subsequent years.
WHY GEN Z IS SAYING ‘NO’ MORE OFTEN – AND SAVING MONEY
“Philadelphia voters took an important step this week by approving PhillySaves,” said Patrick Morgan, project director for The Pew Charitable Trusts’ Philadelphia research and policy initiative.
“It’s imperative that PhillySaves gets off to a fast start. We know from looking at similar efforts that appointing a strong board, hiring the right leader, and education employers and employees about how the plan works is critical to the success of these programs,” Morgan added.
RETIREMENT ‘MAGIC NUMBER’ JUMPS AS AMERICANS GROW ANXIOUS ABOUT THEIR FINANCIAL FUTURES
The measure passed with the support of 78% of voters and follows the Philadelphia City Council passing legislation last year that was signed into law by the mayor in January.
That allowed the program to move forward with the public vote needed to create the governing board under the city’s charter.
“Philadelphia now has a real opportunity to show that smart policy design, strong execution and sustained support can expand Philadelphians’ retirement security in a practical and affordable way,” Morgan said.
Read the full article here
