American workers are increasingly combining multiple sources of income, moving from job to job, building businesses, and seeking more independence and control over their time.
Changes to worker benefits must keep pace to ensure that all workers can access the essential support benefits provided. The US benefits system is largely tied to the traditional employer-employee relationship – and in many cases, full-time employment. This system works for people who have chosen a traditional job, but it does not work for everyone.
“ A benefits upgrade should include flexible, tax-friendly accounts that travel with modern workers between different types of work. ”
A benefits upgrade should include flexible, tax-friendly accounts that travel with modern workers between different types of work. Workers (or the companies they work with) should be able to create their own accounts, and companies could contribute. These “portable benefits” should be tied to the worker rather than the job.
Compared to the existing system – where each employer has its own benefits system and workers who have several part-time jobs or who work as independent contractors can be excluded – this approach would allow the pooling of contributions from several companies. It would also solve the current challenge of linking benefits to employment. Take care of yourself: More than 150 million Americans are covered by their work. The same is often true for benefits such as paid vacations and retirement savings. This system was designed for a world that no longer exists, excluding today’s modern, mobile, self-employed workers.
This system can and must evolve. The US government played a crucial role in shaping the current employer-based benefits system, and policymakers can pave the way for a new generation of workers. In the 1950s, the government ushered in the employer-centric approach to employee benefits by making employer contributions to health insurance tax-deductible. Further reforms would make the US system more portable, flexible and fair.
The 529 Solution
A potential model for these reforms stems from another creative political solution. In the late 1980s, states began experimenting with tax-efficient college savings plans, now known as 529 plans. Offered across the country, the packages are very popular.
Today, 529 plans are administered by the states, which choose professional firms to manage the accounts. Key features are flexibility and portability: once an account is opened, anyone – including family, friends and employers – can contribute. The account is a central location for various contributors to contribute funds to the same person, and it travels with that person throughout their lifetime. Additionally, as long as these funds are used for their intended purpose, they will not be taxed, and many states offer deductions for 529 contributions.
The 529 model operates at the intersection of federal and state politics. States create the framework for these plans while federal tax law provides tax benefits to encourage their use. Portable benefit plans could follow a similar approach (with states piloting portable benefit programs), or they could be piloted directly at the federal level. In short, the concept is flexible and could be tested at either level of government.
Contributions to portable benefit accounts would come from companies that work with independent contractors or employees, but workers could also choose to contribute additional funds. Administration could be handled in a variety of ways, including bringing in the private sector to provide elegant work experiences. Fund administration would be paid with a small percentage of the funds, similar to other investment vehicles such as IRAs, 401Ks, 529s, or low fixed fees.
It’s not a pie-in-the-sky idea – it’s road tested with proven appeal. There were more than 14 million active 529 accounts in 2019, equivalent to the number of Americans enrolled in Affordable Care Act plans. Adapting this portable and flexible account model from education to healthcare, retirement, dependent care – or you name it – could transform a failing system.
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Another important step would be the modernization of employment laws to allow companies to freely contribute to benefit accounts on behalf of the self-employed – without creating the threat of legal risk under outdated employment laws. . As with 529 plans, the design would be simple and flexible, with no contribution or spending limits. Uses can include health care, retirement savings, paid vacation, etc.
“ The benefits of a 529-type system would be widespread, both for workers and for the economy.”
The benefits of a 529-type system would be widespread, both for workers and for the economy:
It would be good for the workers: Workers who accumulate full-time hours in multiple jobs, whether as part-time employees or as independent contractors, could – on the whole – qualify for full-time coverage. And those who work less than full time would not be outdone. For many, health care coverage begins when they work more than 30 hours a week at a single company, making these benefits unfairly all-or-nothing and outdated labor laws often keeping benefits out of reach for the self-employed. .
This approach would provide workers with benefit contributions proportional to their working time and would not depend on employment status. Workers could rely on these accounts to cover insurance or income security when changing jobs or starting new businesses. Companies working with independent contractors would now compete for benefits contributions, creating a race to the top that was never possible.
It would be good for businesses: Separating benefits from employment would reduce the complexity of our fractured, employer-by-employer approach to benefits and streamline the employee onboarding process. This would encourage companies to expand their workforce and reinvest in other resources that best serve workers, while giving employees more choice.
It would be good for the economy: Reducing the “job lock,” which keeps people in unwanted jobs just because of the benefits, would spur small business creation and unlock innovation. A third of workers say they would be more likely to quit their job if they could get health insurance elsewhere, and a quarter of workers say that if employer-provided health insurance was not a factor, they would start their own business. That’s a remarkable amount of American innovation waiting to be unlocked.
We encourage elected officials to explore this issue more closely and pursue legislation that will create a more portable and flexible benefits system for millions of American workers. By using innovation and creative thinking, we can solve these problems and unlock the full potential of our economy.
Noah Lang, is CEO and co-founder of Stride Health. Max Rettig is Vice President and Global Head of Public Policy at DoorDash.
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