Benefits for an Uncommon Group

Art by Nurit Gross

Gig workers comprise about one-third of the U.S. workforce, and that percentage is expected to grow, according to government and other estimates. With that in mind, retirement plan advisers looking to enlarge their client base should consider this market, retirement plan experts say.

Help is definitely needed there. Gig employers tend to offer no benefits, experts say, and this may not change, as, in 2019, the Department of Labor (DOL) issued a wage and hour opinion letter concluding that service providers for a virtual marketplace company are independent contractors. That DOL opinion could only discourage more gig employers from offering retirement savings plans or health insurance benefits to their workers, said David Musto, president and CEO of Ascensus, at the time.

Further, gig workers are apt to be financially fragile, and many need help getting their entire financial house in order, starting with paring down debt, says Micah DiSalvo, chief revenue officer of American Trust.

Indeed, a 2019 Hearts & Wallets survey bears this out. Overall, this group reported having more trouble with nearly all financial tasks than did non-gig workers—e.g., paying off or consolidating debt (18% vs. 12%), saving for a college education (18% vs. 10%), deciding where to put their savings (16% vs. 10%), planning for retirement (22% vs. 15%), starting to save (17% vs. 13%) and determining when they should retire (18% vs. 15%).

Financial advice could help bridge these gaps, DiSalvo notes. But there could be other benefits from working with gig participants. Establishing a rapport with a gig employer could open the door to provide retirement and wealth management services to the C-suite executives, he says.

Advisers serving individual gig workers have a few good options to suggest for retirement savings vehicles, including a SEP IRA [simplified employee pension individual retirement account] or an individual, or owner-only, 401(k) plan, Musto says.

“A SEP IRA is a reasonably low-cost, owner-only employer retirement plan for independent contractors to start saving for their own retirement,” he says. “An owner-only 401(k) plan, another alternative, is generally quick and easy to start, and simple to administer. If they have several different virtual marketplace companies to which they provide services, independent contractors can use their earnings from all self-employment sources to make retirement contributions and control their overall retirement as a result.”

Despite the DOL’s wage and hour opinion letter, DiSalvo says he thinks, with pooled employer plans (PEPs) now available, some gig companies—those that broker gig assignments—might join them, thereby enabling retirement saving for their workforce.

DiSalvo sees the role of advisers serving gig workers as two-fold: “The first is as a pure investment consultant, and the second is as a holistic adviser on employee benefits, such as retirement savings, health savings accounts [HSAs], deferred compensation, 529 college savings plans and financial wellness.”

He advises those pursuing the gig market to charge a one-time or subscription-based fee, not an asset-based fee. “[A JD Power survey] found that 74% of investors under age 40 prefer a one-time fee for full-service wealth management,” he says.

Advisers to this market will also need to rely on technology to scale services cost-effectively to multiple employees, DiSalvo says. “The delivery model is key. I believe the adviser community is in a unique position to provide these services and financial literacy education.”

Some technology solutions are specifically targeted to this workforce segment. Mercer is launching Mercer Indigo on July 1 to provide retirement, health care and other standard benefits for the gig economy, says Mike Bux, a principal in the company.

“We foresee great opportunities for innovation in this space because the gig economy is a workforce with fragmented benefit solutions,” Bux says. “Mercer Indigo is designed as an on-demand platform to support and offer services for gig, freelance, seasonal or part-time workers. Companies can also white label the platform and use their own brand.”