Uber drivers’ new option: Start a retirement account through the app
Uber has a new tool in its arsenal to attract and retain drivers: retirement savings accounts.
The San Francisco ride-hailing company announced Wednesday that it teamed up with automated investor service Betterment to offer its drivers a way to set up retirement accounts through the ride-hailing app.
As part of a pilot program, drivers in certain markets can use the Uber app to open an IRA or Roth IRA through the robo-advisor without a required minimum account balance. Drivers can use the accounts for free for the first year. After that, they pay 0.25% of the average account balance for the year.
Uber Technologies Inc. said Wednesday that this offer will apply to “tens of thousands of drivers” in Chicago, Boston, Seattle and New Jersey, and that it is working with New York-based Betterment to roll out the program nationwide. Uber did not give a timeline for that expansion.
Betterment spokeswoman Arielle Sobel said both companies would contribute “non-monetary resources” to the partnership and that “no money was exchanged.”
Because Uber classifies its drivers as independent contractors rather than employees, they aren’t eligible for benefits such as 401(k) programs, workers’ compensation or paid time off. This means when it comes to preparing for retirement, they’re on their own.
Uber described the program as a way to help drivers “take control of their financial future.”
The partnership is a good “first step” in preparing Uber drivers for retirement, said Karen Friedman, executive vice president of the Pension Rights Center.
“It’s good that Uber is starting to think of its drivers’ retirement, but this isn’t going to lead to adequacy in retirement for many, many reasons,” Friedman said.
The big problem, she said, is that the program asks drivers to make voluntary payments from their already low earnings. Uber will not match driver contributions to the retirement accounts, the ride-hailing company said in an email.
Uber competitor Lyft has offered a similar benefit to its drivers through Honest Dollar since November. Participating Lyft drivers pay a flat $3 monthly fee.
Friedman is encouraged by such programs but said they highlight the limitations of the independent contractor business model and the need for further discussion on new pension plans and mechanisms that would allow businesses to contribute to contractors’ IRAs.
In the short term, the partnership could help Uber retain drivers, according to Stephen Beck, managing partner of management consulting firm cg42, who said the program also helps Uber compete with rival Lyft as well as get some good PR.
“Does it potentially help Uber keep the drivers they have? Yes,” he said. “Does it potentially help them attract more drivers, thereby helping them drive greater availability? Yes. It makes sense.”
In the long term, Rebecca Smith, deputy director at the National Employment Law Project, said if either ride-hailing company is serious about its drivers’ retirement, it should make them employees.
“This [program] is about Uber ensuring a steady supply of workers at least until it rolls out self-driving cars,” Smith said, “nothing more, nothing less.”
The partnership is a coup for Betterment, according to Steven Lockshin, founder of wealth management firm AdvicePeriod, because it potentially leads to new customers and associates Betterment itself with a fast-growing, recognizable company.
“When people talk about new ideas, they say they want to be the Uber of this or Uber of that, so in a way Uber is the ultimate disruptor,” Lockshin said. “And that’s what Betterment wants to be.”
Michael Goodman, 60, an Uber driver from Northridge, said he could see how this might be a benefit to some drivers, but he personally would not use it because he doesn’t believe he will get the best return on his investment through Betterment’s IRA and prefers to shop around.
He also noted that as driver wages continue to decline, it may be a challenge for them to put away even $100 a month after living expenses, car maintenance costs and non-retirement savings.
Uber has over the past year made a push to appease drivers. The company last week expanded its Instant Pay feature, allowing drivers to get paid day-to-day without having to wait for a pay cycle.
Uber also has a program that entitles its drivers to discounts on phone plans, vehicle maintenance and access to personalized health insurance recommendations.
Earlier this year the company allowed drivers to accept tips, although it stopped short of putting a tipping feature in its app.
Does it potentially help them attract more drivers, thereby helping them drive greater availability? Yes. It makes sense.
— Stephen Beck, managing partner, cg42
The Betterment arrangement comes less than a week after a federal judge rejected Uber’s proposed $100-million bid to settle a lawsuit involving drivers’ employment status.
It offered to pay the settlement rather than begin categorizing drivers as employees, which would make them eligible for benefits such as expense reimbursement and overtime.
The judge said Thursday that the proposed sum was unfairly low.
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UPDATES:
3:30 p.m.: This article was updated with additional reporting.
11:15 a.m.: This article was updated to clarify the terms of the agreement between Uber and Betterment.
This article was originally published at 10:05 a.m.
