State Treasurer Joe Torsella Thursday released the findings of an independent study he commissioned which shows insufficient retirement savings will cost the Commonwealth $14.3 billion by 2030.
The study—undertaken by Econsult Solutions, Inc.—is the first of its kind to quantify the fiscal and economic costs of insufficient savings, in the form of increased state public assistance costs and reduced tax revenue, household spending, and jobs.
The study was released as Pennsylvania Treasurer Joe Torsella convened the third hearing of Treasury’s Task Force on Private Sector Retirement Security. The hearings have been held across the state to publicly explore the retirement crisis facing the more than two million working Pennsylvanians who lack access to employer-sponsored retirement plans.
“We’ve had the opportunity to receive expert testimony showing the barriers that prevent businesses from offering plans and the challenges facing employees who lack access to employer-sponsored retirement plans. But today’s independent study shows the collective fiscal impact this crisis will have on the state,” said Torsella. “Insufficient retirement savings will have far-reaching consequences that go well beyond individual implications. We can find a commonsense solution for Pennsylvanians to save now, or we can pay a steep price in increased budget deficits and lost economic activity later.”
The study determined that the Commonwealth spent an estimated $702 million in public assistance costs and lost about $70 million in tax revenue in 2015 due to insufficient retirement savings by Pennsylvania residents.
These amounts are projected to grow to $1.1 billion in extra public assistance costs and $106 million in lost revenue in 2030, for a total of $14.3 billion by 2030. The costs include--
-- Assistance Costs: In 2015, the state spent $4.3 billion in state assistance costs for elderly residents, more than half of which was for assistance for the 21 percent of the population with $20,000 or less in household income. State assistance costs would have been $702 million less if elderly households had sufficient retirement savings. By 2030, the state would spend $1.1 billion less if elderly households had sufficient savings. The total cost to the state in additional assistance costs is a cumulative $14.3 billion over the 2015-2030 period.
-- Household Spending: Pennsylvania’s elderly households spent $49.8 billion in 2015. They would have spent $2 billion more in 2015 had they had sufficient savings, a net loss in economic activity that grows to $4 billion in 2030. The total loss in economic activity is $45 billion that is not injected into the economy through spending on goods and services.
-- Jobs: The reduced economic activity means a loss of employment of more than 20,000 FTE jobs in 2015 to nearly 32,000 in 2030 and associated earnings.
-- Revenue: The lost economic activity means a reduction in state revenues. The fiscal cost to the state will grow from $70 million in foregone tax revenues in 2015, to $106 million in 2030 – for a cumulative total of $1.4 billion over the 2015-2030 period.
The Task Force on Private Sector Retirement Security consists of Sen. Scott Hutchinson (R-Venango), Majority Chair of the Senate Finance Committee; Sen. John Blake (D-Lackawanna), Minority Chair of the Senate Finance Committee; Rep. Bernie O’Neill (R-Bucks), Majority Chair House Finance Committee; Rep. Jake Wheatley (D-Allegheny), Minority Chair House Finance Committee; Sarah Gill, AARP; Kevin Shivers, National Federation of Independent Business of Pennsylvania; Frank Snyder, Pennsylvania AFL-CIO; and Bob Jazwinski, Pennsylvania Institute of Certified Public Accountants.
The hearing focused on the “Impact of the Retirement Savings Crisis in Pennsylvania” with expert testimony from Econsult, the Pennsylvania Independent Fiscal Office, and Georgetown University McCourt School of Public Policy, Center for Retirement Initiatives.
In February, the Task Force will conclude the hearings after receiving expert testimony regarding the “Options to Address the Retirement Savings Crisis in Pennsylvania.”
