Fifty percent — 75 million workers — do not have access to an employer sponsored savings plan. This is despite the fact that these plans are the primary source of retirement savings for working Americans.
Without one, these 75 million Americans can never retire.
These uncovered workers fall into two main groups, people whose small employers don’t offer a plan, and people who are part of the growing “gig” freelance economy and they don’t have a traditional employer-employee relationship.
Uncovered workers are facing a frightening future, with little or no savings, unprecedented economic pressures and increasing life expectancy.
Without the guidance and protection of an employer sponsored plan, people are left to shoulder the entire burden of initiating, designing, planning, and managing a retirement plan on their own, something few people have the training, skills or ability to do.
So it’s not surprising that barely 8% of uncovered workers start a retirement savings plan and they are very often forced to pay high fees — reducing the money they have in retirement.
We Have Entered A New Era
Jobs and work arrangements are not what they used to be and the coming decade promises uncertainty, including changes to employee-employer working arrangements. We will see continued growth in workers who fall into the categories of independent contractors, freelancers and consultants. A recent study by Harvard and Princeton professors concluded that, “all net employment in the past decade came from alternative work arrangements — not full time jobs.”
According to Diane Mulcahy of Babson College, “Full time employees are the most expensive and least flexible source of labor — qualities that make them unattractive to corporate America and Silicon Valley startups alike.”
The American Workforce and Economy Hinge On Financial Security
Access to a labor market with strong financial wellness is integral to launching, maintaining and growing innovative companies. Corporations are essentially communities of people all engaged in the activities that support the organizations’ goals. When that community experiences financial stress, the organization breaks down and the workforce becomes disengaged, with a lack of cooperation, and faltering of innovation.
Therefore, a sense of financial security coupled with an optimistic financial outlook, are keystones to a productive, creative workforce.
Unfortunately, 2016 signaled a dramatic increase in Americans’ stress level about their financial situation. This comes from a large-scale study that NARPP conducted with working Americans. The data showed that three out of four people feel “not at all financially secure”. This finding highlights that we are going in the wrong direction with financial security. Knowing this, we have to start to imagine new ways to extend retirement plan coverage to all working Americans.
The Solution For The Uncovered Worker: A Universal Retirement Plan
NARPP has been working with some of the most respected financial industry experts, behavioral finance academics, and information designers to develop the first universal retirement plan designed to cover the millions of people who do not have access to an employer sponsored savings plan, called Icon.
More importantly, NARPP has worked to make the Icon savings experience process clear, simple, and understandable to the people who need it most.
Icon helps Americans optimize all aspects of their retirement savings journey: accumulation, portability, quality, and transparency along with fairly priced investments and behaviorally effective communications. Icon is designed to meet the needs of individual savers and employers that can’t feasibly cover their employees.
The large-scale social challenges discussed above cannot be solved by any one group, one company, or one policy change.
However we believe that Icon is the first example of what can be built through a strategic partnership between stakeholders who challenge the status quo in order to build a brighter financial future for every working American.
This savings plan, and those like it, will have a profound impact on workers, their families, their communities, and the national economy.
The National Association of Retirement Plan Participants (NARPP) is a San Francisco-based 501(c)(3) non-profit organization whose mission is to advocate for individual savers. For more info go to: www.NARPP.org