Philadelphia has become the first city in the nation to establish its own automatic workplace retirement savings program. Known as PhillySaves, the program is designed to help private-sector employees who do not have access to a workplace retirement plan begin saving for retirement through automatic payroll deductions.
For employers that do not sponsor a qualified retirement plan and meet the City’s eligibility requirements, PhillySaves will create a new compliance obligation once the program is implemented.
How PhillySaves Works
The concept is straightforward:
- Employers facilitate payroll deductions into an IRA for eligible employees.
- Employees are automatically enrolled but may opt out at any time.
- Employers are not required to make contributions and are not responsible for managing the investments.
For many workers, the program will provide a simple way to begin saving for retirement.
Should Employers Consider a 401(k) Instead?
While PhillySaves expands retirement savings access, it may not be the best long-term solution for every business.
Recent federal tax credits have made starting a 401(k) plan far more affordable than many employers realize. In many cases, those credits can offset much—or even all—of the startup and administrative costs during the first several years.
The biggest differences are summarized below.
| Feature | PhillySaves (Auto IRA) | Employer 401(k) |
| Contribution Limits | Limited to IRA annual limits | Much higher IRS contribution limits |
| Employer Contributions | Not permitted | Matching and profit-sharing available |
| Employee Features | Basic IRA | Roth option, loans, and enhanced catch-up contributions |
| Business Tax Incentives | None | Potential federal tax credits for startup and employer contributions |
| Recruiting & Retention | Provides retirement access | Strong employee benefit that can help attract and retain talent |
PhillySaves is an important step toward expanding retirement savings opportunities across Philadelphia. However, for many employers, establishing a 401(k) may provide greater tax advantages, more flexibility, and a significantly more valuable employee benefit.
Before simply complying with the new mandate, it’s worth comparing both options. The right retirement plan can do much more than satisfy a legal requirement—it can become an investment in your employees and your business.
At Kampstra Wealth Management, we help employers evaluate their retirement plan options, understand available tax incentives, and determine the solution that best fits their organization’s goals.
Sources:
https://www.plansponsor.com/philadelphians-to-vote-on-retirement-savings-program