Between 2005 and 2015, an astounding 94% of the net employment growth is estimated to have been through alternative work arrangements, according to a 2016 study published by Princeton University. Technological innovations have led to the creation of business platforms through companies such as Uber, Handy and Priv that enable “gig” work, just one example of a rapidly growing segment of this workforce. Agency temps, on-call employees, freelancers, and independent contractors are examples of those who make up today’s alternative labor market. Retirement may be just a dream for these vulnerable workers
By Angela M. Antonelli
Published: Dec 1, 2017 10:48 a.m. ET
Why the changing nature of work is making even harder to save for retirement
The holiday season is filled with shopping and celebrating and it’s also a time when the demand for seasonal workers also picks up.
While the use of such workers has usually been cyclical, the overall practice of meeting staffing needs through shorter-term alternative work arrangements is increasing. We all know people who are in these roles, such as independent contract workers and temporary employees. Some do it for the flexibility and others out of necessity. Unfortunately, what often comes with these positions is the lack of a stable work schedule and little or no benefits, such as health care and retirement.
This growing trend has ramifications for the financial and economic well-being of individuals and the nation’s economy.
Between 2005 and 2015, an astounding 94% of the net employment growth is estimated to have been through alternative work arrangements, according to a 2016 study published by Princeton University. Technological innovations have led to the creation of business platforms through companies such as Uber, Handy and Priv that enable “gig” work, just one example of a rapidly growing segment of this workforce. Agency temps, on-call employees, freelancers, and independent contractors are examples of those who make up today’s alternative labor market.
The term “contingent worker” is often used to describe all workers in alternative work arrangements, but there is no agreed upon standard definition of this type of employee. The estimates of the percent of contingent workers in today’s labor force can range from 5% to 40%. The more common distinctions made between contingent workers and all others in alternative work arrangements is the lack of a stable or predictable work schedule and the lack of job security. The U.S. Government Accountability Office (GAO) considered about 8% of the entire labor force to be contingent workers in 2010.
No job security, income stability or access to retirement savings plans
The contingent labor market consists of both white-collar and blue-collar workers. Employers tap contingent workers as a way to quickly meet labor needs because they can fill gaps, address short term needs and allow for seasonal flexibility. These workers face greater job insecurity because they are often the first to be let go in an economic downturn.
While some high skill workers in the contingent labor market earn high wages, the GAO estimates that contingent workers on average earn 27.5% less a week and 47.9% less a year than standard workers. They are less likely to have full-time work and work fewer weeks over the course of a year.
As a result, contingent workers have limited access to employer-provided benefits. According to the most recently available data from the Current Population Survey (CPS), only 12.4% of contingent workers were included in their employer-provided retirement plan and only 18.1% of all contingent workers were covered by employer-provided health insurance, compared with 44.7% and 52.1% for noncontingent workers.
More can be done to help contingent workers save for retirement
As the increasingly mobile and contingent workforce continues to grow, new solutions are needed to help these workers save for retirement. The traditional employer-sponsored system must adapt to this new reality. There are some innovative steps being taken to help make it easier for workers to access ways to save for retirement, including:
• Simple, Easily Accessible Technology Solutions. Several new financial technology (“fintech”) firms have come into the market to deliver low-cost retirement savings products designed for these individuals. Firms are using interactive platforms to make it easy for workers to determine how much they need to save and automatically set funds aside on a regular basis into an IRA or 401(k) account. For example, Honest Dollar and Betterment have recently begun to work with internet-based businesses to offer independent workers easy ways to save.
• State-Sponsored Retirement Savings Programs. Several states, such as California, Connecticut, Illinois, Maryland, Oregon, Vermont and Washington, are working on providing private sector employees with retirement savings plans if they do not have access to one through their employer. These programs offer IRAs, 401(k) multiple employer plans (MEPs), or a marketplace of products. These states are also exploring ways to make their programs accessible to contingent workers.
But more can — and should — be done to address the increasingly fluid nature of employment relationships to make it easier for individuals to save and manage their retirement accounts. Employees who participate in an employer-sponsored plan face challenges when they try to consolidate separate accounts from prior employers. According to the GAO, between 2004 and 2014, 25 million participants in workplace plans left at least one account behind when they separated from an employer and millions left two or more accounts behind. Tracking and managing multiple retirement accounts can be difficult and, as a result, some of these accounts are forever lost or forgotten. This problem is exacerbated among contingent workers.
To help make it easier for workers to take their retirement accounts with them as they change employers, one idea proposed by William Gale and David John of the Brookings Institution is attaching the retirement account to the worker instead of the employer. Another idea is the creation of a central retirement savings account registry. This approach is being used in other countries to help individuals more easily track and consolidate all of their retirement savings accounts.
While seasonal work will ebb and flow, the rise of the contingent workforce represents a more permanent change in the nature of how we work today. Because of the lack of access to employer-based retirement plans and the reality that most individuals do not take action on their own to save if their employer does not provide a plan, policy makers need to explore new and innovative ways to help make it easier for contingent workers to save and manage their money for a secure retirement.
Angela M. Antonelli is the executive director of the Georgetown University Center for Retirement Initiatives (CRI) at the McCourt School of Public Policy.