By Janae Nelson
Public Policy Manager, Retirement
A freelance writer, a rideshare driver, a self-employed business owner, and a seasonal hourly worker. What do these roles have in common? They’re all gig workers, a growing segment of the American workforce in non-traditional (e.g., non-salaried) jobs, working on a per-project or per-hour basis. Millions of Americans do gig work, which offers flexibility and can increase one’s job options, but often at the cost of employment benefits such as employer-sponsored health benefits or retirement savings plans.
At a time when many are falling short on saving for their golden years, a joint policy paper from the Social Security Committee and the Retirement Policy and Design Evaluation Committee (RPADE) and accompanying infographic discuss approaches and changes that policymakers could consider to help gig workers better prepare for retirement. The Academy is engaging with both federal and state public policymakers, sharing key findings from this research as they deliberate on how to enhance gig workers’ retirement security.
In April, Claire Wolkoff, a member of RPADE, presented key details from the policy paper and fielded questions from state insurance legislators at the National Council of Insurance Legislators (NCOIL) Spring National Meeting in Louisville, Ky. The presentation focused on identifying savings challenges and providing the latest details of state efforts to enhance retirement security of these workers. Gig workers face many challenges in saving for retirement, and the Academy identified some clear policy options for lawmakers to consider to help improve the financial security of individuals on non-traditional career paths. Traditionally, retirement security has been referred to as the three-legged stool: Social Security; employer-sponsored pension plans; and personal investments and savings, including 401(k) and similar plans. But for gig workers, these traditional options have many obstacles.
- Social Security: While this federal program is the most common source of retirement income for Americans, it’s not as straightforward for gig workers. Their earnings often are underreported, which leads to lower Social Security benefits, impairing the ability to cover future living expenses.
- Pension plans: Not being considered employees, gig workers generally would not be eligible.
- Personal savings and investments: Unpredictable income streams and personal financial emergencies make it tough for gig workers to save or invest for retirement, or take advantage of employer matches or similar account or plan incentives.
In an effort to balance the need for flexibility in terms of employment with the goal of retirement security, some states have elected to establish auto-IRA plans for workers who lack access to an employer-sponsored plan. This provides an opportunity for a gig worker to have a protected means of financing their future retirement when they are not afforded the chance to take advantage of savings programs that would be provided by an employer. Other potential options that the policy paper touches up on include:
- Making retirement plans portable: If a retirement plan is directly tied to the employee, rather than the employer, it could offer increased flexibility when an individual changes jobs. The aim would be to provide greater savings options for workers by improving or providing access to retirement savings accounts while also expanding access to a greater portion of the gig worker and non-traditionally employed population.
- Making federal and state tax law changes: From a tax compliance perspective, employers could be permitted to withhold federal and state taxes from gig workers’ paychecks, thus expanding their Social Security-eligible wages. Employers could also be required to offer or support broad-based financial education on retirement planning, tools, and options. In addition, simplifying the standard business deduction for self-employed gig workers could help make tax compliance easier and more accessible.
- Updating labor laws: Current labor laws governing the relationship between workers and employers don’t sufficiently address gig worker status. One option is to update federal and state laws to provide an intermediate status between employees and independent contractors. This could be done with an eye toward broadening the eligibility of gig workers for employer-sponsored retirement plans, while simultaneously making it easier for employers to provide access to them.
- Enhancing Social Security benefits: Congress could boost Social Security benefits for those at the lower end of the pay scale by adjusting the formulas to support lower-income workers while raising the minimum benefit gig workers receive during their retirement years.
- Broadening eligibility for auto-contributions: Congress could consider federal legislation permitting gig workers to make automatic contributions to an employer’s 401(k) or auto-IRA.
As the gig economy continues to grow and individuals look for ways to balance the desire for additional flexibility in their employment status while preserving their ability to save and prepare for a financially secure retirement, addressing the particular challenges facing gig workers is crucial to closing the retirement security gap. Adapting public policy to the changing environment and implementing options suited to non-traditional work can help gig workers save more consistently, build more stability, and achieve greater financial security in retirement.
For more information on the work of the Social Security Committee, RPADE, and the rest of the Retirement Practice Council, please visit our webpage and check out the latest updates to the Academy’s Policy Forum aging and financial security page.