You’ll never roll over a 401k again.
Our existing system of providing social safety net protections needs some updating. The long term insolvency of programs like Social Security and Medicare that are eating up increasingly large portions of the U.S. budget coincides with the explosion of jobs that don’t offer the traditional complement of benefits like health care and retirement savings. At the same time, less than half of all American households have any sort of retirement savings, and the recent Great Recession demonstrated serious structural problems with the unemployment insurance program. None of this should come as a surprise. The programs that form the foundation of our social safety net were instituted during the Great Depression and have remained largely unchanged since. It’s time to rethink the way benefits are earned and delivered, not just because they’ve grown so large and expensive, but also because, pretty soon, they will simply be inapplicable to large portions of those in the workforce. Portable benefit accounts may be a good possible solution.
Portable benefit accounts allow individuals to accrue benefits such as health care, retirement savings, sick leave, vacation time, disability insurance, etc. regardless of employer so that individuals own their accounts and control their benefits. When individuals change jobs, take on additional work, or move between states, their benefits stay with them and continue to accrue. This is a complete departure from the way benefits are delivered today.
At present, workers earn benefits through formal employment arrangements in which employers are required, by law, to provide certain benefits to “employees.” Employers are not required to provide benefits to independent workers or those only working part time. In the growing gig economy, this leaves many workers without benefits. It also provides perverse incentives for companies to mislabel employees and depress employee hours to minimize their number of full time workers. What’s more, it doesn’t allow individuals to earn benefits for second jobs or other part-time work.
Portable benefits allow workers to earn and accrue benefits through employer contributions and/or automatic payroll deductions, untethered from any specific company, based on a universally agreed upon set of benefits to which the workers would be entitled. Each individual would have their own personal account, into which benefit contributions would be deposited. It would not matter whether workers were full or part time, part of the employee cadre or just contractors, or how long they worked for any one employer. Workers would get paid a set amount of benefits for time worked and would manage their own benefit accounts.
The idea is promising and offers the potential for many new and exciting possibilities. For example, since individuals would accrue sick and vacation time for all work performed, independent workers could take paid vacation and sick time possibly for the first time. It would give new parents the flexibility to take maternity/paternity leave without going months without an income. It would allow those between jobs to withdraw payments from their benefit accounts that would sustain them through the transition, instead of having to make do with paltry unemployment benefits, if they’re even eligible for them. It would free individuals to take jobs based on interests and aptitudes rather than just where they might receive decent benefits. The possibilities are plentiful.
Moreover, while the benefits for individuals are immense, the impact on the national economy will also be significant. Transitioning to a system in which individuals own their benefits instead of one in which the government serves as gatekeeper will take the strain off federal and state budgets by ending the continuous growth of mandates whether or not they can afford to be paid. It will extricate the government from its paternalistic role that has made so many Americans dependent on the government instead of themselves and their communities. It will reduce the size of the government and its ability to pick winners and losers based on arbitrary standards.
Implementing a portable benefits system raises many practical questions, but before we can tackle any of them, we must first all agree that the current system isn’t working, and will only get worse given the changes we know are coming to the economy. Our century-old social safety net system has served its purpose, but we need a new solution for the coming century.