WASHINGTON (March 24, 2016) —  As a growing number of Americans take part in the so-called “gig economy,” in which a single worker may simultaneously fill part-time and freelance positions with multiple employers, reforms are needed to make the retirement-savings system less tied to employers, argues a new paper from the R Street Institute.

A typical worker is likely to accrue multiple retirement accounts over his or her working life, each linked to a particular employer. This creates a situation in which retirement accounts often may be neglected, mismanaged or even forgotten. Additionally, difficulty in accessing accounts – either due to friction with a former employer or because of paperwork and other logistical complexities – only exacerbates the complication.

R Street Associate Fellow Oren Litwin notes the situation is made possible by the fact that “under the current system, assets in employees’ 401(k) accounts do not actually belong to the employees. Instead they belong to the sponsor company (the employer), and are held in trust for the employees’ eventual benefit.” Litwin suggests reforms that would put retirement accounts under the direct control of employees.

Such a system might involve unique worker-controlled accounts earmarked for retirement savings, insurance products and taxable salary. Employers would contribute directly to these accounts, just as they currently deposit paychecks in employees’ checking and savings accounts. The accounts would belong to the employee, thereby significantly reducing the complexity and administrative inefficiency associated with saving for retirement.

The end goal, Litwin notes, is to make “our retirement system less restrictive, less costly and more widely available to everyone.” But he cautions that, in designing a new system, we should be careful not to lose any of the key capabilities of the old one.

“Employee-benefits plans have developed other functions beyond simply providing insurance and encouraging retirement savings,” Litwin writes. “Attempting to replace the current benefits system without fully understanding what it does could lead to tremendous disruption of people’s financial lives.”

Among the capabilities he cites are the ability to borrow from one’s own savings, incentives to encourage employers to reward lower-paid employees through employer matching and profit-sharing, and the ability of employers to use vesting schedules to encourage employee retention.

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