Who Are Uncovered Workers, and Why Should We Care About Them?

For years we have heard about the uncovered worker and pondered what we can do to help them save for a successful retirement. In fact, the proportion of workers not covered by the DC system is its major flaw. Additionally, in the past year we have seen a great deal attention focused on a significant and rapidly growing uncovered worker population: the contract or “gig” worker.

Roughly half of the American workforce does not have access to any kind of employer sponsored retirement plan; in concrete numbers that is about 75 million people. Lack of plan coverage and the resulting low levels of retirement savings is one of the most pressing social challenges of our time.

Uncovered workers fall into two main categories:

  • Full time employees who work for employers that do not offer plans. According to the Government Accountability Office, only 14% of small employers of fewer than 100 employees offer a plan. There are a number of factors that contribute to small businesses not offering plans, including complexity of setting up a plan, liability, scarce resources, lack of knowledge on how to offer a plan, and high fees.
  • Independent contractors and “gig workers” who do not have a traditional employer. Over the past five years there has been a strong trend toward non-employer working arrangements such as independent contractors, freelancers and consultants. It is estimated that by 2020, as many as 40% of American workers will not have an employer. While this may seem surprising, a recent report by professors from Harvard and Princeton concluded that all net employment growth in the past decade came from alternative work arrangements, not full-time jobs.

Despite their huge numbers and the obvious need to plug this hole in our DC system, little research has been done to understand who these uncovered workers are, how they feel about retirement and what their financial acumen is.

In June 2017, the National Association of Retirement Plan Participants (NARPP) completed a major study of the uncovered worker. Following is a look at what we learned.

Who Are the Uncovered Workers?

In some ways, the demographic profile of uncovered workers is not all that different from that of participants in a DC plan. They are both split evenly on gender representation (50/50) and are as likely to be married (about half). But differences exist in other characteristics. Uncovered workers tend to be somewhat older (a median age of 49 vs. 43 for participants), have lower median household incomes ($42,000 vs. $61,000 for participants) and less educated (52% vs. 69% college degree or higher for participants). And among those who work for an employer as opposed to gig workers), more than half (55%) work for a company with fewer than 100 employees (compared to plan participants, where only 17% work for firms that size).

Savings Behavior: Past and Present

Despite not being covered by a DC plan, uncovered workers exhibit a strong desire to save for the future. In fact, 92% are saving for retirement in one form or another. The most common ways in which uncovered workers save is in a bank savings account (50%), followed by an IRA (29%) or investing in the stock market or in real estate (27%). The problem, however, is that with the exception of the IRA, there are no restrictions on the ability to take funds out of these accounts or liquidate the assets when a need arises.

It is interesting to note that 22% are “phantom” DC plan participants. They are putting away money in their spouse’s or partner’s plan by using their income to cover household expenses, enabling the participating spouse or partner to increase his or her deferral rate. Nearly half (49%) of married, uncovered workers say they have a spouse who is participating in a DC plan. But only half of those say their spouse is a DC plan participant. Unfortunately, all this leaves a great proportion of uncovered workers without any kind of retirement savings safety net or structure.


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Finally, being uncovered (presently) does not mean they have never participated in a DC plan. More than one in four (28%) indicated that they have balances in a DC plan with a previous employer (36% among covered workers). However, the median account balance in these accounts is only $23,000. Among those at retirement age, the median balance for uncovered workers is between $75,000 and $100,000 in previous employers’ DC plans. That’s hardly enough to retire on — and remember, the remaining 72% have no past plans.

Do Uncovered Workers Want a Retirement Plan?

Not being covered by a DC plan does not mean uncovered workers don’t want a retirement savings plan. About 8 out of 10 (81%) agree they would feel much better about their retirement prospects if they were offered something similar to a DC plan.

This raises a question as to why so many have the desire to save, yet so few have a cohesive retirement savings strategy. We see in the findings that most do not know how to do it on their own. Nearly half (47%) say that retirement savings is important to them, but they aren’t sure how to get started. And almost two about of three (62%) say they find it difficult to wade through the morass of retirement savings products and don’t know whom to trust (65%) to help them make that decision.

How Knowledgeable Are They?

Uncovered workers’ self-assessment of their financial acumen is substantially lower than that of participants. For example, 44% of DC participants feel they are extremely or fairly knowledgeable vs. only 35% for uncovered workers. The differences are even greater when it comes to the belief that they understand investment principles, know how to estimate their necessary nest egg, and feel comfortable about planning for retirement. Perhaps as a result of their discomfort, they are also much less likely to make a retirement needs estimate. Clearly, uncovered workers need the structure and discipline offered by a systematic retirement savings plan.

Trust in Employers and Financial Institutions

Confidence in financial institutions in general is quite low among participants — only 24% have a “great deal of confidence in the people” running them. However, confidence is substantially lower among uncovered workers (13%). And when it comes to trusting financial institutions, the results are even lower — only 9% feel they can trust financial institutions to “just about always do the right thing” (participants are at 11%). Low trust, combined with uncertainty, a lack of planning and the lack of a mentor, is a toxic mix when it comes to saving for retirement.

How Do Uncovered Workers View Their Employers?

With respect to their view of their employer (which doesn’t offer a plan, of course), trust in their employer is much lower (18%) among uncovered workers than among plan participants (27%). Furthermore, uncovered workers have a lesser view of their employer’s generosity toward its workers (50% vs. 74%) and are less loyal to their employers than participants are (73% vs. 86%)

Uncovered Workers’ Financial Courage

Uncovered workers “financial courage” is low (and about the same as participants). Their self-trust in their financial decisionmaking is rather low and they tend to doubt that the decisions they make are grounded in sound financial principles. Their resilience is low, being easily buffeted by the ups and downs of the market, causing them to interrupt their savings habits. As a result of their low financial courage and lower financial resources, the uncovered worker is likely to be feeling “very stressed” by their financial situation (13% for uncovered workers vs. 6% for participants).

Why DC Plan Advisors Care

As we have talked about the uncovered worker, especially the gig worker, we have received a great deal of interest in the subject from DC plan advisors. Firstly, they are deeply concerned about the efficacy of a retirement system that leaves so many workers in peril of falling short or their retirement dreams. Advisors would like to see this gaping hole in the system repaired before it is changed entirely.

And as we have always seen, offering a DC plan just makes good business sense. Employees of plan sponsors have a substantially more positive view of their employer and are more loyal. DC participants and uncovered workers clearly want and need the structure, clarity and discipline that a DC plan offers — all good points to make when trying to convince an employer to start or continue a DC plan.

Warren Cormier is the president and CEO of Boston Research Technologies and author of the DCP suite of satisfaction and loyalty studies. This column originally appeared in the Fall issue of NAPA Net the Magazine.

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