What Older Low-Wage Workers Are Teaching Us About Retirement
The Great Resignation has forced many frontline workers into early retirement and long-term poverty. Here’s what employers should be doing about it.
“Older workers are the best – they know how to work. They know what it means to have a job.”
That’s what an HR manager told me more than 10 years ago while I was writing my dissertation on retail jobs at the University of Chicago. This person valued older workers for their experience and work ethic, but also for their low cost to employers. Few low-wage workers received benefits like employer-sponsored retirement plans at that time (that hasn’t changed since then, by the way). Now, sadly, they’re paying the price.
Fast forward: Our economy saw a huge number of retail workers laid off during the pandemic shutdown of 2020. In what should be called the Great Retirement, a substantial proportion of them declined to re-enter the workforce. According to Bureau of Labor Statistics data, 1.5 million Baby Boomers retired earlier than planned during the pandemic, not just from retail, but a whole slew of industries, like leisure and hospitality, food service and manufacturing.
How did these workers make it work? The lucky ones had adequate retirement savings as dual-income households. The less fortunate ones found that taking Social Security benefits early gave them about as much income as they earned in low-wage jobs (where full-time hours are nearly impossible to get) while lowering their risk of dying of covid. What a horrible calculation to make!
The consequences are equally horrible. Structural inequality that traps some workers in low-wage jobs leaves them in poverty later in life. The research is well-established: Lower-level jobs don’t just pay poverty-level wages – they also lock workers out of access to employer-sponsored retirement plans.
Eligibility for company 401(k) plans is rarely extended to part-time workers who make up the majority of the workforce in lower-level jobs, such as retail. Even when these plans allow part-time workers to participate, they often impose long waiting periods (and since low-wage jobs typically have high turnover, frontline workers rarely get to the point where they can sign up). Even when a low-wage worker becomes eligible to participate, many 401(k) plans only offer employer matching contributions, making them unattainable, since most of these workers are living paycheck to paycheck and cannot afford to contribute to these plans.
The good news is that leaders who see their workforce as an asset to be maximized, rather than a cost to be minimized, have the opportunity to kill the competition during the Great Resignation. By offering retirement benefits with employer contributions that aren’t conditioned on employee contributions to the workers who need them most, they position themselves to win at both the recruiting and retention game – while, at the same time, benefiting from older workers’ experience and work ethic. Here are three examples of what companies can and should be offering low-wage workers:
Profit Sharing: Optimax Systems, Inc., a highly successful, privately held precision optics manufacturer located in upstate New York, is doing right by their workers with retirement contributions. Instead of just offering matching contributions, Optimax uses a profit-sharing model where they contribute 20% of the payout to retirement savings (~$3,200 in 2021) plus a 50% match for employees’ 401(k) contributions up to 6% of their wages. The goal is to give each employee the opportunity to be a millionaire at retirement. They’ve committed to investing in their workforce and it pays off.
Employer Contributions: Here at my small-but-mighty start-up, the Workforce & Organizational Research Center (WORC), we provide an employer contribution of 2% of salary to our retirement plan – and it’s guaranteed whether you make your own contributions or not. We walk our talk and guess what? It’s not breaking the bank, even for a tiny start-up.
IRS Regulations: For the kind of small business retirement plan we offer at WORC, IRS regulations permit the alternative of offering a 3% matching contribution that would have allowed us to save money on any employees who choose not to contribute to the plan (if you offer the 3% match, you get out of the requirement to contribute the 2% that’s not tied to participation). That rule should be changed. Business owners who want a tax advantaged plan for themselves shouldn’t have the option of saving money on employees who may not have the means to contribute to the plan.
Jobs don’t grow out of the ground like trees – employers build them for good or for ill. This circumstance for older workers was not inevitable. It was a deliberate choice leaders made. But leaders can make choices to invest in our workforces for business impact instead of skimping on our labor cost line item at our peril. The scientific evidence base is unequivocal. Better jobs mean better business. Full stop. Employers who want to win in the market should sit up and take note.
Ellen G. Frank-Miller, PhD, has spent her 30-year career collaborating with employers, national advocates, and community-based organizations to help make frontline jobs better and more accessible to all people. An organizational scholar by training, Dr. Frank-Miller has 15 years of experience in HR consulting and excels at creating evidence-informed programs and policies. Prior to launching the Workforce & Organizational Research Center (WORC), Dr. Frank-Miller founded and led the Workforce Financial Stability Initiative at the Social Policy Institute at Washington University in St. Louis. She earned her PhD at the University of Chicago.
