Above: watch participants at the “Retirement Security in the On-Demand Economy” forum discuss innovative solutions for gig-economy workers to achieve retirement security.
Ever wonder whether your Uber driver is saving for retirement? What about your hip freelance graphic designer friend? Or your nephew working a summer office stint through a temp agency? Today, 53 million Americans work independently as contractors, part-timers, and solo business owners, also referred to as contingent workers. In five years, they will make up nearly half of the permanent workforce. With so many people facing the need to save independently for their retirement, it’s time for radically new ways of thinking about savings.
The Aspen Institute Financial Security Program and Future of Work Initiative recently hosted a cross-sector conversation called “Retirement Security in the On-Demand Economy” to address this growing issue. Participants there discussed how we should adapt our 20th century retirement system for the 21st century workforce.
Under the current US retirement system, the gamble between security and on-demand work won’t pay off for the following reasons:
- Part-time or temporary workers often don’t qualify for employers’ retirement plans
- Few independent contractors, or the self-employed, open retirement accounts on their own. In fact, research shows that only 13 percent of all households contribute to a retirement account on their own
- It can be complicated to roll over a 401(k) account from one job to the next, leaving workers who change jobs frequently with an unmanageable number of different accounts or, even worse, inducing them to take their money out
“What’s exciting to me right now is that people have begun to realize that we are at a crossroads, and we may be at that moment when all of the sectors — private and public — come together…to tackle this problem,” said keynote speaker Phyllis Borzi, assistant secretary for the Employee Benefits Security Administration at the US Department of Labor. She has long urged policy makers and the private sector to make more options available to this growing segment of the workforce.
New, urgent voices — including technology firms, gig economy employers and workers, and leading labor economists — have entered the conversation and can push government to update its laws and regulations to meet the needs of an ever-changing economy, she continued, citing the Obama Administration’s support for:
- Pilot programs to test models of benefit portability, allowing multiple companies to contribute to an individual worker’s retirement plan and accommodate intermittent contributions
- Federal solutions, including the automatic IRA proposal and Treasury’s myRA
- State initiatives that would automatically enroll workers without current access to a 401(k) or other retirement plan at their job into a new, pooled IRA, such as those moving forward in California, Connecticut, Illinois, Maryland, Oregon
Additionally, innovative arrangements coming out of the private sector could eventually become a model for employees seeking retirement benefits. Shelby Clark, executive director of Peers, a contingent worker resource hub, offered examples of this at work, such as Black Car which allows independent contractors to pool together to obtain workers’ compensation. Although these solutions have potential, Clark noted that testing them may be challenging, as many employers fear that establishing benefits will trigger a host of requirements associated with having their workers classified as “employees.”
Other panelists proposed ideas to improve savings by workers in industries like leisure and hospitality, construction, food service, and others with low or no access to employer-based plans. Brigitte Madrian, professor of public policy at Harvard University’s Kennedy School of Government, proposed a flexible contribution rate so that contingent workers with volatile incomes can adjust their retirement contributions automatically based on when pay comes in, when their bills are due, and the size of their emergency savings buffers.
Anthony Bunnell, chief strategy officer for the financial tech firm Honest Dollar, described his company’s mobile phone app, which allows contingent workers — including 100,000 Lyft drivers — to easily set up retirement accounts by pooling small payroll deductions into a low-cost investment fund.
Deciding on the right approaches to provide retirement benefits for contingent workers won’t happen overnight. In the meantime, efforts are underway to ensure future policy decisions are supported by facts. Here are a few recent and promising new initiatives worth noting:
- The Department of Labor is planning to reconstitute its contingent worker survey, last administered in 2005, to better measure the true size of the contingent workforce
- JPMorgan Chase Institute has issued an important report detailing who is participating in the online platform economy and how much they are earning
- Noted economists Lawrence Katz and Alan Krueger recently released a paper documenting the rapid rise in the number of contingent workers over the last decade
The Aspen Institute will continue to host cutting-edge conversations, and amplify powerful voices, in the search for solutions that allow all workers, including your next Uber driver, to retire with dignity.
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