What We Know—and Don’t Know—About Independent Workers and Retirement Savings

Independent workers—those who aren’t part of a traditional employer-employee relationship—often lack benefits such as employer-provided retirement plans, health insurance, overtime pay, or paid vacation. Some policymakers and labor analysts are concerned that independent workers may face precarious retirements unless they manage to save on their own. These workers may also be more likely to depend on means-tested government programs such as Medicaid and Supplemental Security Income during retirement, straining state and federal budgets at a time of increasing pressure on government finances.

Online platform (“gig”) workers have received widespread attention in recent years, but the independent, or contingent, workforce also includes freelance photographers and writers, self-employed doctors and lawyers, independent contractors, warehouse drivers whose employment has been contracted out, and others. Researchers have developed a range of ways to gauge their numbers, based on whether there is an expectation of continuing employment, payment of a wage or salary, and other factors. According to the Bureau of Labor Statistics (BLS), 3.8 percent of working Americans perform independent work. But a study by the Government Accountability Office indicates that as many as 40.4 percent do.

New data from the BLS show that 23.4 percent of contingent workers were eligible for employer-sponsored pension or retirement plans at their primary jobs in 2017. This is about half the rate for workers in more traditional and permanent employment arrangements. Even when they are offered a workplace retirement plan, contingent workers were much less likely to participate than were other workers: about 18.4 percent were included in a workplace plan, compared with 43.4 percent of “noncontingent” workers. Federal tax data analyzed by the Treasury Department’s Office of Tax Analysis show that about 41.9 percent of wage or salary workers contributed to an employer plan or individual retirement account in 2012. By comparison, 7.8 percent of primarily self-employed sole proprietors and 18.8 percent of gig workers contributed.

Researchers don’t know how many independent workers already have pension coverage through a traditional primary job or by maxing out household contributions to a spouse’s workplace retirement plan. For example, a Princeton University analysis of the labor market for Uber drivers in the U.S. reveals that about 31 percent work full time on another job besides driving for Uber, while another 30 percent work part time at another job. Workers with other jobs might not have pension coverage at those jobs at the same rates as other workers, but this has not been documented.

It is also unclear how many workers without pension coverage actually want it. There is some evidence of unmet need for retirement savings vehicles among independent workers. For example, a third of full-time independent workers told MBO Partners Inc. that planning for retirement is a top challenge. About 41 percent of freelancers told the Freelancers Union and Upwork, an online platform that pairs clients with a wide variety of freelancers, that saving for retirement was among the “most concerning” issues they face.

Independent workers who are eligible for employer-sponsored retirement plans may find it difficult to contribute because their incomes are often lower or are sometimes more volatile. According to an NPR/Marist poll, about 49 percent of contract workers said their income changed from month to month or seasonally, compared with 34 percent of full- and part-time workers overall. Some workers with unpredictable incomes may focus instead on short-term, rainy day savings.

If uncovered workers would like access to retirement savings plans, how would they want these packages to be delivered? Would an automatic payroll scheme—such as the auto-IRAs being launched in states such as California, Connecticut, Illinois, and Oregon—be helpful? Would independent workers like a fintech (financial technology) solution, such as a savings app on their cellphones or a savings portal on the internet? Or is there something else? These knowledge gaps point to the need for more and better data.

Answers to these questions would help policymakers to develop appropriate policies, and financial industry benefits managers to develop appealing products, that can bring more independent workers into the retirement savings system.

Alison Shelton is a senior officer with The Pew Charitable Trusts’ retirement savings project.