Benefits December 18, 2019

Older Gig Workers Left Hanging Without Benefits

The number of older workers in the gig economy is growing, creating a need for health and retirement benefit solutions.
Reported by
Art by James Yang

Transitioning to a new job, whether it’s part-time or in a new field, can be an exhausting switch. This rings even truer when it comes to older workers, who oftentimes find themselves without health care and retirement savings benefits.

According to the Center for Retirement Research (CRR) at Boston College, the number of working elder employees without health care coverage or retirement savings benefits has risen to almost 20%, a 5% increase from the 15% of older workers in the mid 1990s.

Never miss a story — sign up for PLANSPONSOR newsletters to keep up on the latest retirement plan benefits news.

Notably linked to the gig economy—where workplace benefits are mainly unheard of—are Millennials. A Prudential study found it’s this younger age group who agrees “traditional full-time employment will largely disappear, and freelancers will make 75% or more of the U.S. workforce.” However, some experts believe older workers, those closer to the Generation X and Baby Boomer group, are quickly catching up.

“Although we think of this being the younger workers’ game, I think older workers are more likely to do it,” notes Geoffrey Sanzenbacher, author of the CRR study and associate professor at the Boston College Department of Economics.

The Current Population Survey (CPS), administered by the Census Bureau and also utilized throughout the CRR report, shows older employees tend to work in nontraditional fields including part-time, contracting, and freelance work at a higher rate than younger employees. The main reason for that, says Sanzenbacher, is independent contracting. While large startups such as Uber, Lyft and TaskRabbit have extensively employed freelance labor, Sanzenbacher argues that only a small fraction of these jobs make up the gig economy.

“The biggest one is independent contracting, and I think that’s where older workers tend to show up,” he explains. “They leverage the knowledge they’ve built over their careers.”

These independent contractors transition their careers to move towards retirement, or at times, free up time to take care for a sick loved one. Because health care benefits and retirement savings are widely inaccessible when it comes to freelance and contracting work, most workers are faced to pay high premiums associated with individual health care, or simply go without it.

“For people younger than age 65, if you’re not working, health care costs are the most expensive,” says Fredrik Axsater, head of Strategic Business Segments at Wells Fargo.

Under the Affordable Care Act (ACA), insurers are allowed to determine health insurance premiums based on the age of the policyholder. Even with a federal regulation allowing for caps on maximum prices, health care bills are one of the most expensive costs piled onto workers. “Some of those incremental costs come later in life, and traditional defined contribution [DC] plans haven’t really addressed longevity risk,” adds Axsater.

Even as independent contractors are unlikely to participate in a workplace retirement plan, other retirement savings solutions are available to this crowd of workers. Individual retirement accounts (IRAs), including SEP or SIMPLE IRAs, are widely popular among those without employer-sponsored 401(k)s, and are efficient too, Sanzenbacher notes.

Yet, while it’s relatively easy to sign up for an IRA, most workers rarely take action due to a lack of knowledge on the subject. Finding a suitable provider, completing multiple forms and selecting investment funds is a challenge to those unacquainted with retirement semantics. All the above services are already offered to those with an employer-sponsored plan—and at some companies, with the option of meeting with a financial adviser too. Self-employed workers aren’t given that option.

“People don’t regularly do these things. That’s hard for someone where this isn’t their job,” Sanzenbacher voices.

Plan sponsor actions

For workers in a contracting position at a company, Axsater suggests employers take steps to ensure all employees have access to a retirement plan. For example, plan sponsors may want to think about implementing a smaller retirement plan for these workers, in order to offset costs while still providing a benefit.

Employers unable to provide a retirement plan or health care benefit to contract workers can suggest providers who offer 401(k)s, without endorsing the companies, Sanzenbacher says. While plan sponsors do risk legal pursuit if they endorse a provider, distributing 401(k) forms from several providers could be helpful to workers without adding a threat of litigation.

“Just having some 401(k) forms from providers in the office could be helpful,” he explains. “It eliminates that first step of reaching out for people. If they can’t offer the benefit, at least providing the open material is a step.”

As more freelancers’ transition into a digital nomad landscape, some employers would be hard-pressed to find any of these workers in the office. For this, Sanzenbacher proposes adding reminders in emails, with links to different options, without endorsing the provider.

Future steps to increase retirement plan participation

Both Sanzenbacher and Axsater agree about how state and federal involvement can greatly shift the current issue, especially for older workers without coverage. In July, California implemented the CalSavers State-Run Retirement Plan, opened to companies with five or more workers including those self-employed. In 2018, Oregon added OregonSaves, an automatic IRA program that has seen success with 62% of eligible workers participating in the program. Additionally, 93% of those contributing participants had not changed their default deferral rate of 5%. 

“I applaud some of the state’s plans for taking action to enable access to more people, and I think that’s a big step in the right direction,” Axsater praises.  “This should be done at the federal level.”

Sanzenbacher argues that the responsibility should not solely be directed at plan sponsors. Even though there are actions employers can take to increase participation among self-employed workers, there is only so much they can do. Third-party platforms, which have been studied by the Center of Retirement Research at Boston College, can be the next step to improve overall retirement plan participation. The platforms would automatically create retirement plan accounts for workers at the start of their career and follow them to each employment opportunity. Instead of the plan being associated with the employer, it’s connected to the employee.

“We need to get more creative in this society about this, because right now, my only answer is a super unsatisfactory answer,” he says. “It would be nice if I could say employers can point their workers to this platform where they already have an account and remind them to save, instead of having to give someone a form and ask them to hopefully fill it out.”

Administration December 16, 2019

Performing an Effective Benchmarking of Plan Advisers

An analysis of advisers’ skills and services helps in finding those with higher skill sets, and those who offer much more value for plan sponsors.
Reported by
Art by Andrea D'Aquino

Just as retirement plan sponsors should periodically benchmark the services of their recordkeeper, third-party administrator and asset management firms, they should also benchmark the services of their consultant or adviser, experts say.

Surprisingly, however, “there are many retirement plan sponsors that started working with an adviser as long as 20 years ago and that have never benchmarked them,” says Steve Wilt, senior vice president and a financial adviser with CAPTRUST. And among retirement plans with an adviser, roughly 20% are not acting as a co-fiduciary and 25% are not retirement specialists, he adds. “If sponsors were diligent about benchmarking their advisers, they might discover that they are not experts on retirement plans,” Wilt says. “It is absolutely important to kick the tires. There are a lot of broken plans out there, without an adviser or without an expert adviser.”

Never miss a story — sign up for PLANSPONSOR newsletters to keep up on the latest retirement plan benefits news.

Dot Foods used the services of InHub to benchmark advisers and found surprises that led it to hire a new adviser. A survey from InHub found the No. 1 issue motivating an RFP was a reduction in proactive service or response rate (80%).

So, where should a sponsor start? “There is a cottage industry of independent third party specialists and ERISA [Employee Retirement Income Security Act] attorneys that can help plan sponsors conduct formal requests for proposals [RFPs] on their advisers, and most sponsors are benchmarking advisory fees and services on an annual basis,” says Paul Sommerstad, a partner at Cerity Partners. Some of these specialist companies include Curcio Webb, North Pier Consulting, InHub and Wagner Law Group, Sommerstad says.

And as sponsors are continuously asking more from their advisers, it becomes increasingly important for sponsors to stay on top of whether or not these services are being satisfactorily delivered, Sommerstad adds. These include going beyond the three F’s of providing solid funds, reasonable fees and fiduciary services, he says, to “fiduciary training for the committee, deep dive plan design analysis, participant education and advice and even help with M&As.”

Thus, for any benchmarking exercise to lead to informative results, the sponsor needs to first determine what outcomes it wants from its adviser, says Bob Carroll, head of workplace distribution at MassMutual. These could be improving the plan participation and deferral rates, bolstering the projected income replacement ratio, and ensuring that there is a reasonable distribution of investments based on age, income and risk tolerance, Carroll says.

And even if a sponsor is satisfied with its current adviser, it is wise for the plan sponsor to issue a RFP every few years to see what other advisers have to offer, Carroll says. “Most plan sponsors are constantly hearing from prospecting advisers, so there is no shortage of opportunity for plan sponsors to speak to other advisers,” he says.

Sponsors that want to conduct a RFP on their own can obtain an RFP template from the Retirement Plan Advisor Council, Wilt says. He recommends that sponsors narrow the search down to three to four retirement specialists, or who he calls “elite advisers,” adding that some sponsors make the mistake of including generalists in their search.

“Another way is to identify the top advisers in your area and invite them in for an interview,” he adds. “You don’t necessarily have to go through the paper process of a RFP. Ask them how they plan to make an impact on the plan to benefit participants. Ask them for a quote and a proposal and document that process.”

Cerulli surveyed 401(k) plan sponsors in the fourth quarter of 2018 and found that 37% were planning to conduct a search for a new adviser in the next 12 months, with the main reason being their current adviser was not effectively negotiating with their other service providers, followed by underperforming funds in the lineup, says Anna Fang, a research analyst with Cerulli.

Craig Rosenthal, senior vice president of advisor sales and service at Fiduciary Benchmarks, says that when his firm analyzes the services of advisers, it considers four factors: quality, service, value and extra credit.

“Quality is who is the adviser,” Rosenthal says. “What credential do they have? How much insurance coverage do they have? Services cover the things the adviser actually does. Do they take on fiduciary status? How many meetings do they hold a year? Value is the results they deliver. What types of participant success measures do they achieve? Extra credit is what extra work or hours do they offer? The combination of these four things leads to quality benchmarks.”

«