15 August 2018

Gig Workers Retirement Prospects Look Dim

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What will retirement look like for gig workers? It isn’t a pretty picture, according to preliminary research presented by Jack VanDerhei, research director of the Employee Benefit Research Institute, at a policy forum earlier this month. In the worst-case scenario, the potential impact on national retirement income adequacy is staggering: The nation’s overall net retirement savings surplus at retirement age would decrease by $2.2 trillion (in 2018 dollars). And the retirement savings shortfall for those who run out of money in retirement would increase by $61 billion.

“The potential dollar value is truly significant,” VanDerhei says. Of course, with the gig economy evolving, there are lots of assumptions: For example, how the percentage of the workforce in the gig-only economy will change over time. “Do you stay in the gig economy or grow up and get a real job?” VanDerhei asks. “For a certain percentage of these people, once a gig worker, always a gig worker.”

His worst-case assumptions: Gig-only workers have no access to workplace retirement plans like 401(k)s. And the probability of being a gig-only worker doubles immediately. The baseline for the percentage of people who identify as gig-only workers today comes from T. Rowe Price data: Millennials (9%), Gen X (19%), baby boomers (11%) and the silent generation (5%).

“The number one disadvantage to working in a gig model is the lack of access to savings and benefits through an employer,” says Jake Biscoglio, vice president of strategic initiatives with Prudential Financial. “They have to figure it out and fund it on their own.” Lower income than their W2 peers hurts too. The average annual income for gig-only workers is $36,500, compared to $62,700 for full-time workers, according to a Prudential report, Gig Workers In America.

“Employers recognize this growing problem,” says Julie Stitzel, managing director of policy and strategic initiatives for the U.S. Chamber of Commerce. In some cases, employers are stepping in. She cited Uber, which teamed up in 2016 with the online financial firm Betterment to give drivers access to IRAs through payroll deductions. Nearly 2,000 Uber drivers have saved $2,000 on average in Betterment IRAs, for a total of $3.7 million so far. 

Yet most employers are hesitant to push creative ideas because of obstacles in the labor law. “Congress is not at the forefront, and we’re not solving this today,” laments Kendra Isaacson, senior pensions counsel with the Senate Committee on Health, Education, Labor and Pensions.

There are promising solutions at hand, VanDerhei says, and he hopes to incorporate those into future research, which would mean more optimistic numbers. While the idea of a federal law to mandate automatic Individual Retirement Accounts, or auto-IRAs, has been languishing for over a decade, states are starting mandatory auto-IRAs (Oregon, Illinois), and another state idea—a marketplace where small employers and employees can connect to IRA and 401(k) providers—is underway in Washington and will soon be in New Jersey. Another possibility is a federal marketplace for retirement plans. The trick is to get gig workers to open up and fund IRAs, SEP-IRAs or even solo 401(k)s. “Things will be coming down the pipe soon,” VanDerhei says.

Click here for the original article from Forbes.

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