Moving Toward a System of Portable Benefits in the Gig Economy
As the employer-employee relationship and the meaning of a “workplace” continue to evolve in the “gig” (or “sharing” or “on-demand”) economy, a model of portable employee benefits, which are managed by mobile workers themselves, is gaining appeal. This employee benefits approach is not currently intended to replace employer-provided benefits for all workers but rather to fill a gap for those who may work independently as contractors or as temporary employees, do not have access to workplace benefits, or move from employer to employer quite frequently. Development of such a model, however, calls into question the future of the employer-provided system of employee benefits, which has been under attack in recent years.
As a result of the demise of the employer-provided pension plan and the rise of participant-directed savings plans, workers have already felt the movement away from the paternalistic approach to retirement benefits. This development has not been without controversy, as exemplified by the debates regarding participant savings rates, education regarding investments and fee transparency, and the U.S. Department of Labor’s (“DOL’s”) fiduciary rule regarding investment advice.
Also, on the health care front, the Affordable Care Act has provided a platform for workers to obtain their own individual health insurance in the Marketplace, either through choice or necessity, and the tax benefits of employer-provided health benefits are being threatened in tax reform initiatives. With the implementation of consumer-driven designs, employees are also managing their health spending and insurance choices.
These changes in benefits design and access to employer-provided programs, as well as the rise of the mobile workforce, have provided a foundation for further movement toward portable benefits. This movement continues to manifest itself in several ways, including through:
President Obama’s call for portable benefits programs. In his fiscal year 2017 budget, President Obama called for the development of programs to provide grants to states and nonprofits to design ways to provide retirement and other employee benefits that can be portable and accommodate contributions from multiple employers. In addition, he called for legislation regarding open multiple employer plans (“MEPs”) among unaffiliated employers to allow for pooled plans and continued contributions when employees move between employers participating in the same MEP. He also proposed requirements to allow part-time workers to participate in plans and measures for easier rollovers to plans. These initiatives would build upon earlier proposals for automatic payroll individual retirement accounts (“IRAs”) and other tax credit initiatives to small businesses.
Automatic payroll IRA programs and other alternatives. For employers that do not sponsor any retirement savings plans, there is increased momentum for automatic payroll IRAs. To date, at least five states (California, Connecticut, Illinois, Maryland, and Oregon) have enacted legislation that will require certain employers that do not sponsor a retirement plan to enroll employees automatically in a state-run IRA program. New Jersey and Washington have approved retirement marketplaces for eligible employers to shop for retirement savings programs, and many more states are considering alternatives, including state-run IRAs and MEPs. These initiatives follow guidance from the DOL facilitating such efforts (including parameters for state-run IRAs to avoid being subject to ERISA) and complement the U.S. Department of the Treasury’s guidance regarding myRA accounts, as well as President Obama’s agenda. Other legislative proposals include mandates for contributions to plans run by third parties or the federal government. Laws in this area will continue to evolve.
Portability policy advocates. In “Common Ground for Independent Workers,” an array of businesses, labor organizations, venture capitalists, and other stakeholders in the gig economy have called for policies to ensure a social safety net for all workers. This past May, Uber was among the first employers in the gig economy to come to agreement with the Independent Driver’s Guild, which is working on ways to offer its members a range of portable benefits. Retirement Clearinghouse (“RC”) has advocated for auto-portability plans that move retirement savings assets automatically with workers as they switch jobs. RC has requested an advisory opinion from the DOL to permit negative consent, which would allow plan account balances to roll automatically into a new employer’s plan.
What Employers Should Do Now
In the race for talent, it is important for employers to consider their own philosophy concerning employee benefits and the types of programs that they desire to offer their workers, whether full time, part time, contingent, or otherwise. It is also necessary to assess compliance with any programs that may be mandated by changing laws. In this evolving landscape, an employer should:
examine its organization’s workforce and determine which benefits programs are desirable to attract, motivate, and retain these workers in a competitive marketplace;
identify any gaps in benefits offerings and consider how to fill those gaps;
monitor legislation affecting employee benefits and applicable compliance requirements; and
determine whether its organization is subject to laws that will require it to comply with certain government-mandated programs when no applicable benefit program is otherwise offered by the employer, and decide whether it is instead desirable to establish, or expand coverage under, an employer-sponsored plan.