Keystone Saves Bill Passes Pennsylvania House
The need for more robust retirement savings for workers is an issue which has been top of mind for legislators over the last several years. Broader access to employer sponsored retirement savings plan along with reduced hurdles to participation are just two of the many issues that have to be considered. Last December, Congress passed the Consolidated Appropriation Act of 2023, which included the SECURE Act 2.0. This legislation, named after the original SECURE Act passed in 2019, delivers several reforms and updates to benefit workers and make it less burdensome for small employers to offer retirement plans. While these reforms offer some measure of relief, many states have elected to make further changes.
A key challenge for Pennsylvania is that many small businesses simply cannot afford to offer an employer sponsored retirement plan. It is estimated that 40% of workers do not have access to a plan. If this trend continues, it is projected to cost the state $17.8B over the next 12 years via increased spending and lost tax revenue. As a remedy, Pennsylvania House Bill (HB) 577 was passed, which will create the new Keystone Saves retirement program. The program provides workers without access to an employer sponsored plan the opportunity to participate in a state managed program. To help clients, prospects, and others, Klatzkin has provided a summary of the key details below.
What is the Keystone Saves Program?
It is a state managed retirement savings program for Pennsylvania workers that do not have access to an employer sponsored retirement plan. It also offers small businesses a no cost alternative to provide a workplace retirement savings plan. In addition, since it is not mandatory, savers can opt out at any time, contributions can be withdrawn tax and penalty free, and the worker will always own the IRA so the state can never have a claim to the savings.
Employer Program Participation
Program participation is mandatory for companies except those that have fewer than five employees, currently offer a retirement savings plan, or have been in business less than 15 months. Like other state programs, such as in Illinois or Oregon, mandatory participation will be based on employer size over several years. Businesses with more than 100 employees must register no later than two years after the effective date, 20-99 employees no later than 30 months, 10-19 employees no later than three years, and 5-9 employees no later than four years after the effective date.
Regulations governing payroll deposits and reporting still need to be developed. The program is expected to include guidelines for employers to follow when hiring a new covered employee, when to enroll in the program, and the timeline for when elective deferrals must begin. Regulations governing remittance procedures for payroll deductions through a qualified arrangement have not been created. In other words, there are several important details which have yet to be clarified.
Employee Program Participation
An employee is not required to participate and can opt out as desired. The retirement accounts are portable and can be transferred into another retirement savings plan in the future. Participants can select the payroll deduction rate, but if one is not selected it will default to 4%. Annually, the rate can be adjusted up to a maximum of 10%. In addition, participants may update the payroll deduction percentage, make changes as desired, opt-out of the automatic annual increase in the deduction percentage, and select from any of the investments offered in the IRA. Finally, program participation can be terminated in accordance with IRS rules.
Contact Us
While the Keystone Saves program has been approved by the House, it still needs to be signed into law. Despite this, it does provide an important step forward to help those who do not have access to such a retirement plan. We will keep you updated of changes as they develop. If you have questions about the information outlined above or need assistance with plan set-up, Klatzkin can help. For additional information, call 609-890-9189 or click here to contact us. We look forward to speaking with you soon.