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Retirement plans for contingent workers: Issues and options

William G. Gale, Sarah E. Holmes, and David C. John

In the traditional employer-employee relationship, workers earn a salary or hourly wage and receive fringe benefits.  Today, however, many workers have alternative work arrangements. In recent years, the rise of the so-called gig economy – which allows people to hail cabs through Uber, find household help through TaskRabbit, and book lodging through Airbnb, among other applications – has brought contingent workers into the spotlight.  But similar issues have been present for the last several decades, as employers have substituted independent contractors or firms employing them for traditional employees.  Few of these workers receive health or retirement benefits, and as a group, they are often overlooked in policy debates.[1]

The contingent workforce is diverse and large. The sector includes full-time workers as well as part-time or seasonal workers.  It includes white-collar consultants and independent contractors, some of whom are highly paid, as well as blue-collar workers such as printers, security guards, maintenance professionals and factory workers, a significant number of whom were once regular employees.  Some contingent workers, including many in the gig economy, also work in traditional jobs and use contingent work to supplement their other earnings. Some people do contingent work because they cannot find traditional employment, while others choose it because they prefer the flexibility of the hours or other aspects of the job.

Using the most widely accepted definition, there were nearly 11 million contingent workers in 2010, about 8 percent of the employed labor force. [2] On average, these workers earned almost 13 percent less annually (even controlling for the effects of working part-time or seasonally) and were two-thirds less likely to have access to a work-provided retirement plan than their traditionally-employed counterparts. [3] More generally, scattered evidence discussed below suggests that retirement saving is low among these workers.

This paper explores options for helping contingent workers to save for retirement. This is a particularly daunting challenge for at least two reasons.  First, conventional retirement saving mechanisms are usually not available to this segment of the workforce unless they are also working as a traditional employee at another job.  Thus, they tend to miss out on provisions that encourage retirement wealth accumulation, such as payroll deductions, automatic enrollment, and employer matching contributions. Of course, anyone with earnings can contribute to Individual Retirement Accounts (IRAs), but only a very small percentage of those without an employer plan do so on a regular basis.  Second, the diversity of contingent workers means that it is very unlikely that any single approach will be suitable for the entire group.  Full- and part-time workers are likely to have differing needs, especially if the part-timers are working more than one job. Similarly, a proposal that fits the needs of a professional consultant on a long-term project may not be suitable for a blue collar worker with sporadic hours or an Uber driver who works only when he or she wants to. For this reason, we offer a number of ideas for enabling these workers to build a more secure retirement.  We discuss several incremental solutions designed to improve access to and increase participation in retirement savings vehicles. We also discuss a more comprehensive solution that would decouple retirement saving plans from the employer, so that individuals would have retirement accounts – much like their Social Security accounts – that follow them across employers and across various work arrangements.

Section II provides background on the contingent workforce.  Section III discusses what is known about the current retirement security position of contingent workers.  Section IV explores several options – as opposed to advocating a single idea – for improving independent workers’ retirement security. Section V concludes.

Read the full paper, Retirement Plans for Contingent Workers: Issues and Options.

[1] Retirement Security Project, Brookings Institution. We thank Debbie Chalfie, Derek Dorn, Jason Fichtner, John Friedman, Hilary Gelfond, Joshua Gotbaum, Aaron Krupkin, Robert Toth, and Christian Weller for helpful comments. We thank the Laura and John Arnold Foundation for funding this work.  The findings and conclusions are the responsibility of the authors and do not necessarily reflect positions or policies of the Brookings Institution, its funders, or any other organization.

[2] GAO (2015), Bureau of Labor Statistics (2016).

[3] GAO (2015).


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