Philadelphia Initiates City-Run Retirement Savings Program
Philadelphia voters recently approved a landmark measure to establish the country’s first city-operated savings initiative aimed at workers without retirement benefits. The program, dubbed PhillySaves, enables private-sector employees whose employers lack retirement plans, like 401(k)s, to enroll automatically in an Individual Retirement Account (IRA) managed by the city.
Importantly, participation in PhillySaves is voluntary. Workers can choose to opt out of automatic enrollment and have the flexibility to adjust their contribution amounts taken from their paychecks. The accounts are designed to continue following individuals into new jobs, allowing them to withdraw their contributions tax-free if necessary, though any earnings taken out would be taxed.
It’s quite concerning that nearly half of Generation X has drained their savings and delayed retirement due to increasing expenses and stagnant wages. This context makes PhillySaves especially relevant.
About 208,000 private-sector employees in Philadelphia will be able to take part in the program, which is particularly beneficial for those in service industries marked by high turnover or for employees of smaller businesses that might struggle with compliance requirements for setting up traditional retirement systems.
Moreover, companies enrolling their workers in PhillySaves won’t face any employee registration fees. The initiative will be run by a third-party company, under the watch of the Philadelphia Retirement Savings Commission, created specifically for this purpose. Initial estimates suggest that the program will cost the city around $1 million upfront and about $500,000 annually thereafter.
“The approval of PhillySaves is a major step for Philadelphia,” noted Patrick Morgan, project director at the Philadelphia Research and Policy Initiative with Pew Charitable Trusts. He emphasized the need for a prompt launch, pointing out that the success of such programs often hinges on appointing a competent board and effectively educating both employers and employees about how the plan operates.
This measure received strong backing, with about 78% of voters in favor. It follows a recent city council decision that cleared the way for public voting, necessary for forming a governing board under city regulations.
Ultimately, Morgan expressed hope that Philadelphia could demonstrate how thoughtful policy design, robust implementation, and ongoing support could enhance the financial well-being of its residents, promoting security in retirement in a practical and affordable manner.
