As we emerge into a world recast by COVID-19, the shape of the benefits challenge in the United States will be quite different.

The pandemic has significantly altered the ways businesses operate. Many are looking to manage costs more effectively, which affects both labor force structures and benefit solutions. It also may have reinforced the younger generations’ saving and investing behaviors, which were already different from those of prior generations.

Advisers who understand these changes and the ways they may affect workplace benefits will have opportunities to strengthen practices and expand market share. Top-of-mind issues for plan advisers include the shift toward a distributed workforce, the role of benefits in building loyalty among freelance and gig workers, and demographic changes in the workplace.

The Shift to a Distributed Workforce

Many companies embraced the COVID-19 challenge by having employees work from home. The experience confirmed what academics and consultants have been saying for years: Employees remain engaged and effective when working remotely. In fact, many proved to be more productive working from home.

It’s a discovery that companies will leverage to help manage costs as they recover from the pandemic. Reducing the number of on-site employees creates opportunities to reduce a variety of costs, including on-site technology and real estate expenses. A recent Gartner survey reported that almost three-fourths of chief financial officers intended to have at least 5% of employees work remotely on a permanent basis.

The way in which companies structure their distributed workforces will depend on the financial consequences of the pandemic, corporate culture and other factors. One company’s distributed workforce is likely to be very different from another.

Some employers will continue to hire full- or part-time W-2 employees, and company benefit needs may remain fairly consistent. Other companies may restructure to include, and sometimes emphasize, full- or part-time freelance workers. By hiring workers when they are needed, employers can lower overall expenses, manage risk exposures and operate with a lower head count, among other benefits. Since managing costs is imperative for many companies today, it’s likely distributed workforces will include a combination of W-2 and freelance workers.

While benefits may not be a priority for companies that are focused on surviving economic upheaval, it’s critical for plan advisers to understand the ways clients are restructuring their labor forces and begin thinking about the ways benefits may be modified to sustain and build loyalty among freelancers and gig workers who deliver critical and specialized skills.

Building Loyalty Among a New Type of Workforce

Traditionally, benefits have helped employers attract and retain W-2 talent. However, the way people chose to be employed was changing prior to the pandemic. At the end of 2019, 57 million Americans, about 35% of the workforce, were freelancing or working in the gig economy, Upwork’s 2019 Freelancing in America Survey reported. “The most common type of freelance work is skilled services, with 45% of freelancers providing skills such as programming, marketing and consulting,” the report said.

The majority of freelance workers surveyed indicated they were uninterested in returning to a traditional job, no matter how much money they were offered. The goal for these workers was to find an ideal work-life balance. That creates unique challenges for employers who seek incentives that will help attract skilled freelancers and earn their loyalty.

It also creates challenges for benefits advisers who can distinguish themselves by providing incentives that appeal to both W-2 and non-W-2 workers. One possibility is expanding the availability of benefits to freelancers. Upwork reported, “Freelancers and non-freelancers share most of the same list of top concerns, including access to affordable health care, a healthy savings account, retirement funds and being paid fairly.”

Perhaps newly designed holistic benefits will allow freelancers to direct a portion of pay into health insurance plans, health savings accounts (HSAs), retirement savings plans, emergency savings accounts, disability insurance, life insurance or other benefits programs. It’s an idea with potential to lower overall benefits costs for employers and W-2 employees, while providing freelance talent with a badly needed safety net.

This approach is a significant departure from “business as usual” for plan advisers, and requires rethinking current practices and identifying—or innovating—solutions suited to the needs of a reconfigured workforce.

Another opportunity for advisers is meeting the benefits needs of very small and owner-only businesses, as well as freelance workers. There are about 5.6 million companies in the United States with two to 100 employees, according to the Census Bureau, and many millions of owner-only businesses and gig economy employers. Meeting the needs of these groups is critical to improving retirement security in the U.S.

Acknowledging and Addressing Issues Around Current Retirement Plans

There is little doubt that pandemic-related economic upheaval has had a profound impact on businesses in the United States. In May, 722 companies filed Chapter 11 bankruptcy, and the number of active small business owners dropped by 3.3 million from February to April. McKinsey & Company surveyed small and medium-sized businesses owners and found:

• 48% had been personally affected by coronavirus;
• 56% said their businesses had been affected by coronavirus;
• 54% said their ability to work/run the business had been impaired because of coronavirus;
• 53% said their income had been negatively affected by coronavirus; and
• 49% said their businesses feel less secure because of coronavirus.

Many of these business owners have engaged advisers in discussions around how to better manage the costs of 401(k) plans and how to pay those costs. Some have suspended or eliminated matching contributions, and others may be considering plan terminations.

As we emerge from quarantine, we should acknowledge that company-sponsored retirement is about more than 401(k) plans. Many employers do not know there are retirement plan options beyond 401(k) plans. This is especially true among small businesses that remain unaware of the retirement solutions available to them, such as SEP [simplified employee pension] and SIMPLE [savings incentive match plan for employees] plans and other arrangements.

A pre-pandemic survey commissioned by Millennium Trust and conducted by CITE Research found that 55% of small businesses had researched retirement savings programs. Two-thirds had explored only 401(k) plan options—and 100% of them did nothing. The vast majority said they did not have a solid understanding of any other type of retirement plan.

This is a serious failing on the part of our industry. We need to find ways to improve plan sponsor education. Improving retirement security means expanding plan coverage so more employees, of all types, have access to retirement savings solutions.

In Summary

The workforce of the future is likely to look very different from the workforce of today. Conversations around holistic benefits, eligibility and employer objectives are likely to change significantly during the next few years, and there is a good chance the solutions employers will need in the future are not the products available to them today. Consequently, it’s critical for plan advisers to consider what the world could look like as we come out of this crisis and prepare to meet the needs of a greatly changed world.

Author’s note:

Kevin Boyles is vice president of workplace savings solutions at Millennium Trust Company LLC. Boyles has nearly 20 years of experience in the retirement plan and health savings marketplace.

The material in this article is presented for information purposes only. The information presented is not investment, legal, tax or compliance advice.

Millennium Trust Company performs the duties of a directed custodian, and as such does not offer or sell investments or provide investment, legal or tax advice.

Editor’s note:

This feature is to provide general information only, does not constitute legal or tax advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of Institutional Shareholder Services or its affiliates.