There has been a tremendous amount of chatter and no doubt you are at least somewhat familiar with the term, and the practice of the sharing, or peer-to-peer, economy. For those that are not or just to verify what we are talking about, The People Who Share website has a pretty good description:
The Sharing Economy is a socio-economic ecosystem built around the sharing of human and physical resources. It includes the shared creation, production, distribution, trade and consumption of goods and services by different people and organizations.
There are task brokers such as TaskRabbit and Fiverr; on-demand delivery services like Postmates and Favor; and grocery-shopping services like Instacart. Among the most well-known services are Airbnb, the short-term-stay broker and of course, the ride-sharing services, Lyft and Uber.
Those that participate as providers are often drawn to the idea of self-management and stepping outside of the typical hustle and bustle; and the ability to diversify their work life on schedule that works best for them.
How do retirement plans fit into this sharing economy and self-management, particularly for individuals who have accrued multiple accounts over the course of their working lives?
As a growing number of Americans take part in the so-called sharing economy, in which a single worker may simultaneously fill part-time and freelance positions with multiple employers, reforms are needed to make the retirement-savings system less tied to employers, argues a new paper from the R Street Institute.
R Street Associate Fellow Oren Litwin notes the situation is made possible by the fact that, “under the current system, assets in employees’ 401(k) accounts do not actually belong to the employees. Instead they belong to the sponsor company (the employer), and are held in trust for the employees’ eventual benefit.” Litwin suggests reforms that would put retirement accounts under the direct control of employees.
Such a system might involve unique worker-controlled accounts earmarked for retirement savings, insurance products and taxable salary. Employers would contribute directly to these accounts, just as they currently deposit paychecks in employees’ checking and savings accounts. The accounts would belong to the employee, thereby significantly reducing the complexity and administrative inefficiency associated with saving for retirement.
The end goal, Litwin notes, is to make “our retirement system less restrictive, less costly and more widely available to everyone.” But he cautions that, in designing a new system, we should be careful not to lose any of the key capabilities of the old one.
“Employee-benefits plans have developed other functions beyond simply providing insurance and encouraging retirement savings,” Litwin writes. “Attempting to replace the current benefits system without fully understanding what it does could lead to tremendous disruption of people’s financial lives.”
Among the capabilities he cites are the ability to borrow from one’s own savings, incentives to encourage employers to reward lower-paid employees through employer matching and profit-sharing, and the ability of employers to use vesting schedules to encourage employee retention.
R Street is a non-profit public policy research organization that supports free markets; limited, effective government; and responsible environmental stewardship. It has headquarters in Washington, D.C. and five regional offices across the country. Its website is www.rstreet.org.