America is facing a retirement crisis, and even though it might be more important than ever to save for the future, a 2015 Government Accountability Office report suggested nearly half of households nearing retirement had no retirement account savings at all. With the Social Security Trust Fund projected to run out of money in 17 years and the continued decline in defined benefit pension plans, it is increasingly important that workers have access to simple retirement savings options.
The situation has only become more difficult as the number of people earning a living in the "gig economy" has increased.
The "gig economy" generally refers to project-based or temporary work arrangements, or gigs, that individuals rely on for income. Although independent contracting is not new, the scale and profile of these arrangements has been raised in recent years by the proliferation of app-based platforms that connect people requiring services to those who can provide them at the push of a button. Uber, Lyft and Postmates are some examples. It's a development that, according to an NPR report, could account for half of the American workforce within the next decade.
"Gigging" provides a host of benefits that have driven the growth in participation over recent years, perhaps none more so than the flexibility it affords workers. According to Lyft, 96% of its drivers say flexibility is very important in the decision to drive.
But as these individuals are generally classified as independent contractors, they are unlikely to receive the normal benefits traditional employment typically offers, including retirement savings plans. However, imposing a traditional employee benefits model on these arrangements would limit flexibility and gig opportunities in general.
There is a simple solution that Congress can act on to help.
Earlier this year, I hosted a roundtable in the Senate titled "Exploring the 'Gig Economy' and the Future of Retirement Security." Those who tuned in might have been surprised to witness a bipartisan panel unanimously agree that an easy way to help expand access to retirement savings options to small businesses and workers in the gig economy would be through open multiple employer plans.
In an open MEP, small businesses and contractors would be able to join together and rely on an experienced and qualified retirement plan professional to take on the administrative burdens and responsibilities of managing a retirement plan. This would reduce costs for participants and ensure that individuals need not be financial experts to create a retirement plan.
This is particularly important as traditional defined benefit pension plans have increasingly proven to be too expensive and too risky, and employers have increasingly relied on defined contribution plans, such as the 40-year-old 401(k), to contribute to the retirement security of employees.
Unfortunately, these employer-sponsored retirement options are becoming outdated for many 21st century jobs. With tight budgets and limited expertise, small businesses often choose to simply pay employees and deploy their limited capital elsewhere. According to the Bureau of Labor statistics, 85% of workers at companies with 500 or more employees have access to retirement benefits, whereas only 49% of workers at companies with less than 50 employees had access.
Gig workers and contractors, on the other hand, are excluded by federal and state laws that arbitrarily prevent companies using or facilitating their services from contributing to their retirement without putting their contractor status in jeopardy, creating an unnecessary choice between flexibility and financial security.
We know people are less likely to put money away when there are hoops to jump through — open MEPs can be the solution to help people save. The idea was already included in the Retirement Enhancement and Savings Act, which received unanimous support from the Senate Finance Committee in 2016.
Earlier Congresses could not have imagined the changes that the internet would bring to the workforce nor could they have known that workers would be able to manage their personal brokerage and retirement accounts from the palms of their hands. Many policymakers today yearn for the time when our current retirement laws were written and folks worked for the same employer their entire careers. I sympathize with this nostalgia, but bringing our laws into the 21st century is a whole lot easier than building a time machine.
Whether covering primary expenses or earning a bit of extra cash, workers should not have to choose between flexibility and retirement security. It's time that Congress stops penalizing gig workers and lets the market take the wheel by allowing open MEPs.