Gone are the days when either workers or employers had a reasonable expectation that any given employee would put in 30 years of faithful service at the same company, to retire with a party, a pension and a gold watch.
Heck, hardly anyone wears watches anymore!
Instead, traditional defined benefit pensions have been squeezed out by increasing global competition. Employers and employees are increasingly moving toward a short-term, tactical relationship, with teams of on-demand contractors replacing what used to be traditional employment relationships. Think Uber, Lyft, DoorDash and TaskRabbit. All these workers in the field are independent contractors, out hustling and getting paid by the task.
Workers like the freedom. And employers like the lack of long-term obligation and the added costs of benefits like health care and retirement plan contributions.
But these workers will need health care, like everybody else. And they will eventually have to retire. And that’s a problem: Current laws do not account for these workers. Traditional employees get to contribute to 401(k)s, 403(b)s, non-qualified retirement plans, Self-Directed SIMPLE IRAs, or they have employers set up Self-Directed SEP IRAs and contribute to them on their behalf.
Your Uber driver does not have any of that. And we know that only a vanishingly few of them are earning enough to save much on their own. Especially after accounting for the wear and tear on their cars!
Congress is beginning to take notice.
Earlier this year, Senators Chuck Grassley (R) and Ron Wyden (D) introduced a new bill aimed at expanding retirement plan participation to these workers. The bill, dubbed the Retirement Enhancement and Savings Act (RESA) would reform existing laws governing multi-employer plans (MEPs), in order to encourage more companies that work with “gig economy” workers to offer retirement benefits to them, in addition to their full-time employees working at the company headquarters.
The way things are now, companies cannot offer a qualified retirement plan to these workers, even if they wanted to – without converting them to employees. RESA would remove some of these restrictions, enabling them to establish MEPs with other companies and include contract and gig economy workers in their retirement benefits.
RESA would also facilitate regular worker contributions by allowing for regular, automated contributions and automated annual increases.
The proposed law encourages the use of annuities and would expand access to lifetime income products – but most of the younger gig economy workers are a long way off from annuitizing.
Other workers would benefit, too.
- Supporters say the legislation would allow older workers and retirees to contribute more to their retirement accounts.
- It would increase 401(k) coverage to part-time employees.
- It would prevent as many as 4 million people in private-sector pension plans from losing future benefits for which they have worked and planned.
- The legislation would protect 1,400 religiously affiliated organizations whose access to their defined contribution retirement plans is in jeopardy.
- It would make retirement distributions for adoption costs tax-free.
- Additionally, the law as written would provide more favorable tax treatment of the survivor benefits of more 18,000 children and spouses of fallen service members.
Some of these provisions will directly benefit owners of Self-Directed IRAs.
The House of Representatives has already passed similar legislation – the Setting Every Community Up for Retirement Enhancement Act (SECURE) of 2019. It sailed through with a nearly unanimous voice vote. However, despite strong bipartisan support in the Senate, the bill has stalled in committee.
Not because there’s much opposition to it, but because the Senate is focusing its attention on judicial appointments and has not allocated much floor time to legislation.
Also, Senators Ted Cruz, Pat Toomey and Mike Lee have tapped the brakes. According to reporting by PlanAdvisor.com, Cruz wants 529 plans addressed, while Lee and Toomey want to take a closer look at some plan details that affect small town newspapers and tax issues for retailers, respectively.
If RESA passes in the Senate, the two chambers would work to reconcile the differences and pass a unified bill for the President’s signature.