Portable retirement plans offer niche alternative for gig workers, job jumpers

Maybe you can take it with you? 

There’s a nascent market developing for portable retirement plans that target gig workers and job jumpers, and accounts that give workers more flexibility when it comes to retirement saving.

Given that the average worker will have 12 different jobs in their lifetime, according to the Bureau of Labor Statistics, there’s a lot of moving around of retirement assets.

The Employee Benefit Research Institute (EBRI) estimates that about $92 billion in savings leaves U.S. retirement funds every year when workers switch jobs and cash out their retirement accounts. Also, an estimated $1.35 trillion was left sitting in retirement accounts with previous employers.

“A hot topic in the retirement industry is what the job changers do with their accumulated retirement assets. They’ll be able to join their new plan but shouldn’t lose sight of their old assets – and need to sort out whether they want the funds to follow them into the new plan or be put into an individual account,” said Jack Barry, head of product development for John Hancock Retirement. 

A survey by Icon Savings Plan found that 92% of workers want their retirement plan to move from job to job with them. 

Playing into that desire, Icon has a portable retirement product, which is an individual retirement account (IRA) that moves with the worker, takes payroll contributions from the employees’ paycheck and can be offered as a retirement benefit by companies.

Icon said its product provides workers with a personal retirement plan that never requires a rollover. The plan travels with the saver without having to change the investments or the plan.

“The 401(k) was built 50 years ago. It was never meant for widespread use. It’s not portable and it’s not adaptable to a more independent workforce,” said Laurie Rowley, founder and chief executive of Icon Savings Plan. “We’re fixing what doesn’t work and providing what people say they want. Portable retirement is the future.” 

Unlike investing on your own by setting up your own IRA, Icon’s product includes investing advice and setting up the investments based on the individual’s goals and needs, Rowley said. Icon portfolios include ETFs (exchange-traded funds) ETFs from Vanguard and BlackRock.

Since the Icon product is an IRA, it’s constrained by an IRA’s limited contribution rules. In 2023, the IRA limit is $6,500 if you’re under age 50 or $7,500 if you’re age 50 or older. That compares with the $22,500 individuals can put in 401(k)s, with catch-up contributions of $7,500 for those aged 50 and older. Still, Rowley points out that only a small percentage of workers max out their 401(k) accounts. 

The average 401(k) contribution was 7% of pay in 2021, according to Vanguard 401(k) data. That jumped to 11% when employer contributions were included. Only 23% of 401(k) participants save more than 10% of their salary for retirement, Vanguard found.

In a similar move to target gig workers, people with side hustles and those building their own companies, Robinhood in December launched an individual retirement account offering with a 1% match on every dollar contributed.

Read: Robinhood launches IRA for gig economy

Gig workers, such as ride-share drivers, pet sitters, food delivery drivers or freelancers, make up as much as 40% of America’s total workforce.

Pew Charitable Trust recently found lack of access to a workplace plan is the most significant retirement savings challenge facing nontraditional workers, with 77% saying they would participate in a defined contribution savings plan if they were eligible for it. 

There have been efforts on the federal level to create portable benefits, but so far they have failed to come to fruition.

Last year, Senators Mark Warner (D-VA) and Todd Young (R-IN), along with Rep. Suzan DelBene (D-WA), had proposed the “Portable Benefits for Independent Workers Pilot Program Act,” which sought to provide gig workers with access benefits such as retirement savings, workers’ compensation, life or disability insurance, sick leave and training and educational benefits.

Warner also previously joined with Rep. Jim Himes (D-CT) to propose the Portable Retirement and Investment Account (PRIA) Act of 2021. Touted as a way to help gig workers, part-time workers and those without access to an employer-sponsored account, that proposal sought to create universal, portable retirement accounts for every American at birth at the same time they receive a Social Security number. 

Still, some question the need for portable plans when gig workers and others can already set up their own IRAs. 

“The portable plans have not been well-adopted yet. They are not taking over, by any means,” said Jamie Hopkins, managing partner of wealth solution at Carson Wealth.