Senate Panel Explores Ideas to Foster Retirement Savings for ‘Gig’ Workers
Witnesses at a Feb. 6 Senate committee hearing debated current challenges and offered several policy proposals to help so-called “gig economy” workers save for retirement.
At the Senate HELP Subcommittee on Primary Health and Retirement Security’s roundtable-style hearing, four panelists argued for solutions ranging from open MEPs to easing the existing legal framework that prevents companies from extending retirement benefits to independent workers.
Subcommittee Chairman Mike Enzi (R-WY) cited an NPR report suggesting that the gig economy could account for half of the workforce within the decade, noting the importance of understanding the motivations of those participating in the gig economy and how it affects their savings opportunities. Enzi stated that the discussion could result in legislation, but added that the overall issue needs “far more investigation and discussion.”
Senate HELP Committee ranking Democrat Patty Murray (D-WA) noted that she is optimistic that the committee can find bipartisan solutions to address the retirement challenges for gig economy workers, offering support for improving portability options for workers. Murray also said that she is working on a “women’s Pension Protection Act” to help provide access to retirement plans for female low-wage and part-time workers.
Challenges to Existing Legal Framework
Addressing the structural challenges that currently inhibit gig economy workers from obtaining access to retiree benefits was one of the messages delivered by Camille Olson, a partner at the Seyfarth Shaw law firm, who testified on behalf of the U.S. Chamber of Commerce.
“The current legal and regulatory scheme effectively discourages companies who utilize independent workers from offering retirement benefits,” Olson testified, noting that “it is not surprising that many independents have not otherwise obtained access to a vehicle to save for retirement.”
One example she provided is that independents currently cannot be offered benefits that are governed by ERISA. As a result, she explains, gig economy companies cannot include independents within ERISA plans offered to company employees or even facilitate transfers into retirement plans for independents. Gig economy companies “cannot even offer non-ERISA information or facilitate administratively or financially the retention by independents of employee retirement benefits without jeopardizing the legal status of their operational models,” Olson added.
Olson offered several options to address existing impediments for independent workers, including:
- allowing gig economy companies to provide benefit information to independents;
- allowing gig economy companies to assist with the administration and facilitation of direct deposit of funds into retirement vehicles, and contribute to portable retiree benefits for the benefit of independents;
- promoting flexible, portable retirement products and services with open platforms that allow for contributions from multiple organizations and participants;
- providing independents monetary incentives to save for retirement; and
- ensuring that gig economy companies’ facilitation of retiree benefits education, administration and funding for independents does not negatively impact the independents’ legal relationships with the gig companies.
Olson’s recommendations mirror a policy proposal put forward by the American Retirement Association to allow plan sponsors to open up their retirement plans to self-employed contract workers who don’t qualify to participate in the retirement plan of the employer under current law. The ARA proposal would exclude those contract workers from the normal plan coverage and contribution rules that apply to non-contract workers, thereby not jeopardizing the qualified status of the plan. The proposal also makes it clear that voluntary participation in the plan by contract workers does not, by itself, change the employment classification of the contract worker.
Vikki Nunn, an attorney at Porter, Muirhead, Cornia & Howard in Casper, WY, explained that employers worry about crossing the boundary that would change someone who is a contract worker into an employee. She noted that there are many ramifications for employers that inadvertently provide contract workers with benefits, adding that the penalties can be harsh. She suggested that it is “critically important to provide clarity and safeguards.” An Open MEP Solution?
Much of the testimony and discussion centered on policy changes to allow open MEPs. While all of the witnesses supported the open MEP concept, the most enthusiastic advocate was Troy Tisue, president of TAG Resources in Knoxville, TN, who testified that an open MEP arrangement “holds substantial promise and can be structured to support contingent workers.”
Tisue suggested two ways that an open MEP system could be structured to cover gig workers:
- Have the company contracting with independent workers to sponsor a plan for their contingent workers, treating each worker as a co-sponsor of the MEP. The company could set up an “automatic contribution” arrangement where the employer would pay a portion of the contractor’s compensation directly into the plan.
- Have organizations unrelated to the contracting company establish the plan and for those contracting companies to contract with the independent worker to make contributions to the independently organized MEP. The tax and legal structure would be the same as the first example, but the MEP would have participants from a range of employers and the independent worker would have the opportunity to stay in the same plan.
Tisue highlighted the need to eliminate ERISA’s “common interest” requirement to facilitate the use of open MEPs and to eliminate the “one bad apple” rule to protect employers (including independent workers) from liability for non-compliant acts and from being disqualified.
In response to a question from Sen. Todd Young (R-IN) about whether there is any resistance to open MEPs, Olson noted that she doesn’t believe there is any, adding that the proposals have bipartisan support and that it’s simply a matter of Congress moving forward. Solo(k)s
Nunn offered her support for expanding access and awareness to single-participant 401(k)s – or “Solo(k)s” – suggesting that the biggest issue is that many people simply are not aware of them.
Nunn said that her firm has witnessed many mid-level managers being laid off only to be brought back as consultants. She contends that a Solo(k) would be a way to help these individuals, but noted that finding a provider and starting a Solo(k) plan can be a “daunting” task.
Nunn explained that it is common for a Solo(k) application to be 20 pages or more, and while technically they are not subject to Title 1 of ERISA, much of the same wording is used for the plans and applications. In addition, she noted that the fee potential on these plans is fairly low, which could result in plan providers not showcasing the Solo(k) option to the same extent they do for other options. Worker Classification
One of the most contentious issues discussed at the hearing centered on the current worker classification rules. While three of the witnesses generally supported each other’s policy suggestions regarding worker classification, Economic Policy Institute economist Monique Morrissey took the opposite approach. Morrissey contended that gig economy “is not as big as people make it out to be,” further suggesting that distinctions between gig economy workers employed through online platforms and other contingent or nonstandard workers are often exaggerated.
While she noted that she is in favor of finding ways to have people save, Morrissey argued against efforts to weaken current independent contractor standards. She suggested that policymakers need to strengthen and not loosen distinctions between employees and independent contractors. “I don’t have sympathy for companies who want to have it both ways,” Morrissey stated.
Morrissey also suggested that expanding Social Security should be a No. 1 priority, including making sure gig workers are not underreporting their income and are paying into the system in order to get benefits. She also advocated for expanding the Saver’s Credit and supporting state and local initiatives to offer benefits to workers who do not have access to an employer plan.