U.S. workers are increasingly combining multiple income streams, moving from job to job, starting businesses, and craving more independence and control over their time.
Changes to worker benefits must keep up to ensure all workers can access the critical support benefits provide. The U.S. 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 traditional employment, but it doesn’t work for everyone.
“ A benefits upgrade should include flexible, user-friendly tax-advantaged accounts that travel with modern workers between different types of work. ”
A benefits upgrade should include flexible, user-friendly tax-advantaged accounts that travel with modern workers between different types of work. Workers (or the companies they work with) should be able to start 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 every employer has its own benefits system and workers who have multiple part-time jobs or work as independent contractors can be left out — this approach would enable pooling contributions from multiple companies. It would also solve the current challenge that bundles benefits with employment. Take health care: more than 150 million Americans receive coverage through their job. The same is often true for benefits such as paid leave and retirement savings. This system was built for a world that no longer exists — excluding today’s modern, mobile, independent workers.
This system can and should evolve. The U.S. government has played a crucial role shaping the current employer-based benefits system and policymakers can lead the way for a new generation of workers. In the 1950s, the government ushered in the employer-centric approach to benefits by making employer contributions to health insurance tax deductible. New reforms would make the U.S. system more portable, flexible and fair.
The 529 solution
One potential model for those reforms stems from another creative policy solution. In the late 1980s, states began experimenting with tax-advantaged college savings plans, now known as 529 plans. Offered across the country, the plans are widely popular.
Today, 529 plans are administered by states, which choose professional firms to operate the accounts. The key traits are flexibility and portability: once an account is opened, anyone – including family, friends, and employers — can contribute. The account is a central place for various contributors to contribute funds to the same person, and it travels with that person throughout life. Moreover, as long as these funds are used for their designated purpose, they won’t be taxed, and many states offer deductions for 529 contributions.
The 529 model operates at the intersection of federal and state policy. States create the framework for these plans while federal tax law provides for tax advantages to encourage their use. Portable benefits plans could follow a similar approach (with states piloting portable-benefits programs), or they could be piloted directly at the federal level. In short, the concept is flexible and could be piloted at either level of government.
Contributions to the portable-benefits accounts would come from the 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 tapping the private sector to provide elegant worker experiences. Administration of the funds would be paid with a small percentage of the funds, similar to other investment vehicles such as IRAs, 401Ks, 529s or low flat fees.
This isn’t a pie in the sky idea — it’s road-tested with proven appeal. There were more than 14 million active 529 accounts as of 2019 — equal to the number of Americans enrolled in Affordable Care Act plans. Adapting this portable, flexible account model from education to health care, retirement, dependent care — or you name it — could transform a broken system.
Another important step would be the modernization of the employment laws to allow companies to freely contribute to benefits accounts on behalf of independent workers — 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 could include healthcare, retirement savings, paid leave, and more.
“ The benefits of a 529-style system would be widespread, for both workers and the economy.”
The benefits of a 529-style system would be widespread, for both workers and the economy:
It would be good for workers: Workers who accumulate full-time hours across multiple jobs, whether as part-time employees or as independent contractors, could — in aggregate — receive full-time-level coverage. And those who work less than full-time would no longer be left out. For many, healthcare coverage begins when they devote more than 30 hours a week to a single company, making those benefits unfairly all-or-nothing and dated employment laws often keep benefits out of reach for independent workers.
This approach would provide workers with benefit contributions in proportion to how much they work and wouldn’t depend on employment status. Workers could rely on these accounts to cover insurance or income security when switching between jobs or starting new businesses. Companies working with independent contractors would now compete over contributions toward benefits, creating a race to the top that has never been possible.
It would be good for companies: Unbundling benefits from employment would reduce the complexity of our fractured, employer-by-employer approach to benefits and streamline the process of onboarding employees. This would encourage companies to expand their workforces and reinvest in other resources that best serve workers — all while giving employees more choice.
It would be good for the economy: Reducing “job lock,” which keeps people in unwanted jobs solely because of benefits, would spur small business creation and unlock innovation. A third of workers say they would be more likely to quit their jobs if they could get health insurance elsewhere, and a full quarter of workers say if employer-provided health insurance weren’t a factor, they would start their own businesses. 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, flexible benefits system for millions of American workers. By leaning on innovation and creative thinking, we can solve these problems and unlock our economy’s full potential.
Noah Lang, is CEO and co-founder of Stride Health. Max Rettig is vice president and global head of public policy at DoorDash.