The need for a publicly-sponsored retirement option for local business
Like the rest of the United States, Philadelphia is facing a looming retirement security crisis. Philadelphia Controller Alan Butkovitz has become a champion for a publicly-sponsored retirement plan for the City of Philadelphia. After extensive research and numerous conversations with business leaders and other stakeholders, he believes that the City of Philadelphia can play a very useful role in facilitating broad access to quality retirement savings plan for private sector workers. Local businesses will benefit from being able to offer quality retirement benefits at low cost and liability; the City’s economy will benefit from increased retirement savings on the part of residents; and the City’s treasury will benefit from the increased purchasing power made possible by additional savings.
This report supplements the findings in the City Controller’s May 2016 report assessing the current state of retirement security in Philadelphia. For the current report, the Controller partnered with numerous business organizations across the City to conduct surveys and focus groups in order to understand employer challenges to sponsoring retirement plans for workers. The Controller also analyzed the two primary publicly-sponsored retirement options for private sector employers – the auto-enroll IRA (aka “Secure Choice”) and the Open Multi-Employer Plan (aka “Open MEP”).
The Controller’s analysis found that:
- Sixty percent of Philadelphia businesses surveyed do not offer retirement benefits. This includes76 percent of businesses with revenues under $1 million.
- Accommodation and food service small businesses are the least likely to offer employer-sponsored retirement plans. Eighty-two percent of such businesses lack plans for theiremployees.
- Businesses that have been in operation for less than five years are less likely to offer retirementbenefits than those in business longer
- The leading reasons why surveyed businesses fail to offer retirement benefits: the high cost ofestablishing and maintaining a plan, perceived lack of employee interest, and lack of knowledgethat plans exist for small businesses.
- More than nine in ten (92%) of employers surveyed in Philadelphia prefer a voluntary retirementoption such as an Open MEP over a government-mandated plan like an auto-enroll IRA.
Based on the findings, the City Controller recommends the following steps:
- Given the current federal regulatory environment, the Controller recommends that the City pursue some form of Open Multi-Employer Plan (“Open MEP”), a 401K-type plan that could include auto-enrollment and auto-escalation. Under current federal regulations, participation on the part of business in such a plan would be voluntary.
- The City should designate or create an authority or instrumentality of the City to administer and manage the plan.
- The City should seek a financial and legal feasibility analysis to determine the implications, risk factors and sustainability of a implementing a city-sponsored and facilitated plan.