Philly is poised to launch a retirement savings program for workers without 401(k)s
Council is poised to pass legislation that would enable the plan, called PhillySaves, which is modeled on similar state-facilitated “auto IRA” programs.
Philadelphia could soon become the first American city to establish its own retirement savings program for residents whose employers don’t offer one.
City Council is poised to pass legislation that would enable the plan, called PhillySaves, which is modeled on similar state-facilitated “auto-IRA” programs that have been increasingly established across the country.
The idea is that workers would be automatically enrolled in the city-managed plan and would contribute through payroll deductions at no cost to their employer. The plan would then follow employees, even as they change jobs.
Council President Kenyatta Johnson, a Democrat, said during a committee hearing on the legislation last week that the program is an anti-poverty measure aimed at generating wealth for more than 200,000 Philadelphians who do not have access to a retirement savings plan through their job.
“We want to make sure we are lifting all Philadelphians out of poverty, building generational wealth, and ensuring our seniors are financially stable in retirement,” Johnson said.
A Council committee approved the legislation following a hearing last week, and the full Council is expected to pass it. Voters would have to approve the creation of an investment management board through a ballot question, which could come as early as the May primary election.
Councilmember Cindy Bass, a Democrat who represents parts of North and Northwest Philadelphia, called the plan a “game changer.”
“There was a time when you could retire just on Social Security alone,” she said. “That day has come and gone.”
How would the program work?
Workers would be automatically enrolled in the plan with a default contribution rate of 3 to 6% of their wages, however they can opt out or change their contributions at any time.
Employers that do not offer their own retirement plans would be required to sign up. Their only responsibility would be facilitating the payroll deductions for their employees. There is no matching program for employers or the city.
City Councilmember Mike Driscoll, a Democrat who represents parts of Northeast Philadelphia and is sponsoring the legislation, emphasized last week that there is “no cost” to employers and no fiduciary liability.
“The goal is to make it easy for employees who want to save,” he said, “and not burden employers who are already managing their many responsibilities.”
The legislation includes minimal fines for employers who don’t enroll employees. But Council members said the city will launch a significant public education and outreach campaign before levying fines.
Who is the program for?
Under the current version of the legislation — which could still be amended — the program applies to businesses with at least one employee. It must have been operating in Philadelphia for at least two years.
Auto-IRA plans are especially geared toward hourly workers who generally have fewer employer-covered benefits, such as 401(k) plans, as well as people who work for small businesses that can’t afford to provide retirement benefits.
Is this a new thing?
Twenty states have passed legislation creating their own auto-IRA plans and 16 programs are open to participants, according to the Center for Retirement Initiatives at Georgetown University.
Pennsylvania is not among them, but New Jersey launched a state-run retirement savings program last year. That plan, called RetireReady NJ, was first established in 2019 and signed into law by Gov. Phil Murphy, a Democrat.
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As of July, more than 18,000 workers were saving through the program, according to the state’s Department of the Treasury.
It is more limited than Philadelphia’s would be, in that it only applies to businesses with at least 25 employees. Philadelphia’s would apply to businesses with just one.
Two other cities — New York and Seattle — passed legislation enabling auto-IRA programs, but neither was implemented because both New York and Washington states enacted state-run programs that include the cities.
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The Democratic-controlled Pennsylvania State House passed legislation in 2023 along party lines enabling a similar program called Keystone Saves, but it stalled in the Republican-controlled Senate.
Treasurer Stacy Garrity, a Republican now running for governor, has for years advocated for the program’s passage.
How will the investments be managed?
The city would create a nine-member Retirement Savings Board, which would include four appointees by the mayor, four by the City Council president, and one by the city controller.
That board would be responsible for facilitating the program and may contract third-party consultants, financial advisers, actuaries, and other experts to manage the investments.
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Why does the money go into a Roth IRA?
The program defaults to a Roth IRA, though people covered can elect to switch to a traditional IRA.
John Scott, director of the retirement savings project at Pew Charitable Trust, said during the Council hearing last week that Roth IRAs are often the default in auto IRA programs because participating employees can pull money out of those accounts at any time without taxes or penalty.
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He said that’s especially appealing to workers “who sometimes have fluctuations in their work schedule or they might have a financial shock.”
“For many of these workers in these programs, this is really the first opportunity to save money,” Scott said. “So, you know, life happens. And sometimes they do need to pull that money out, and the Roth IRA is really the best vehicle to do that.”
When will this become reality?
Creating the board that will oversee the investments requires a change to Philadelphia’s Home Rule Charter, the city’s governing document.
If Council passes legislation and Mayor Cherelle L. Parker signs it — both are expected to support it — then voters could approve the change through a ballot question as early as May.
The legislation says the program must be launched by July 2027, however there are exceptions in the case of legal challenges or a state-level program superseding the city’s.