Retirement Saving for the ‘Gig’ Economy

The workforce is changing — and so is the way workers prepare for retirement. Today’s younger employees change jobs more frequently; many prefer several part-time jobs or freelance work. Among the many implications of this trend is that employers and employees may want to consider new approaches to retirement saving and planning, argues a recent policy study.

Oren Litwin, in “Reimagining Retirement for the Gig Economy,” argues that the new economy and employment trends suggest that the current system for retirement saving does not serve anyone very well — especially more transient workers. “If this system ever were appropriate, it has become less so over time, as jobs have become much less secure and employees move rapidly from company to company,” he writes.

Litwin argues that if a new system were designed, it should be premised on the following principles:

• the system should be easy to use, and benefits should be easily understand and managed;

• compliance costs and fees should be as low as pos¬sible for employees and employers; and

• unnecessary restrictions on the kinds of investments that can be made and the kinds of benefits that can be provided should be removed.

Litwin contends that making the retirement savings more portable would obviate what he calls the “hassle of multiple retirement accounts,” something he says “creates considerable friction and expense for people who change employers.” He also argues that it would address the complications he says can arise when an employee leaves an employer but still has a retirement account with that employer’s plan.

Instead of the current system, Litwin suggests a new one in which the distinction between employer retirement accounts and IRAs are erased. Attributes of such a system, he says, could include the following.

• An individual would have a set of uniquely identified “shell” accounts: one or two earmarked for retirement sav¬ings; one earmarked for insurance products; and one for tax¬able salary, all administered by a bank or trust company.

• Just as employers under the current systems deposit money from an employer’s paycheck into a bank account, an employee could tell them to divert some of that income (as well as any employer matching or profit sharing) into a retirement account. Employees also could contribute money into their retirement accounts from salary accounts, external bank accounts or tax refunds.

• The retirement account would be solely under the employee’s ownership and control.

• Employers that provide retirement grants would have no control over the assets, so they would avoid the expenses and liabilities of plan administration.

• Employees would no longer need their HR department’s approval to make asset withdrawals.

• Employees could borrow from retirement savings, a process overseen by a trust company.

Litwin argues that these and other reforms “would advance fundamental policy goals: making our retirement system less restrictive, less costly and more widely available to everyone.”

What’s your take on Litwin’s suggestions? Use the comment box below.