Modern Tech Stacks Give Rise to Voluntary Benefits For All Hourly Workers

Warren Buffett was right when he declared the super-rich a coddled group while most Americans struggle to make ends meet. A recent Federal Reserve survey found four in 10 American adults wouldn't be able to cover an unexpected $400 expense with cash, savings, or a credit card. 

Today, more than 100 million Americans have no retirement savings ⸺ whatsoever. Nearly 80 million Americans don't have access to or participate in employer-sponsored retirement plans, especially hourly workers and small businesses' hourly or part-time employees. Yet when workers have access to automatic payroll-deduction-based retirement programs, they're 15 times more likely to save. PwC research found one primary reason for the lack of employer-sponsored retirement plans is their expense; SMBs can't afford the cost in time or expense. 

Approximately 30 million SMBs employ 50% of workers in the U.S. According to the SBA, small businesses create more than half of the new private, non-farm gross domestic product. They also produce 60 to 80% of net new jobs. SMBs are underserved despite their role in job creation and powering the economy. As a result, all of their employees are also disadvantaged. 

As a collective category, big businesses throw their weight around to barter at multiple levels, with vendors, city officials, state governments, and the federal government. They get ready access to financial credit, rich benefits packages customized for their needs, significant discounts for employee health care, hotel rates, rental cars, gym memberships, etc. All government sectors shower big businesses with special breaks, loans and deals never offered to SMBs. These ongoing perks vary and include city-approved tax exemptions, government financing, sweetheart land lease deals, and zero-interest loans or bailouts, as witnessed in the 2008 financial crisis. Vertical industries receiving the most government coddling include financial, insurance, automotive, healthcare, oil and gas, agri-business, and transportation. Vendors across the spectrum, particularly the financial sector, prioritize big business, placing it in a cherished class.

The net result of this lop-sided playing field is that SMBs are on their own, overlooked by most vendors, and discounted by all levels of government. Indeed, SMBs are more challenging and expensive to reach for selling goods and services because this group is highly fragmented. SMBs service all of the long-tail business needs, from accounting and agriculture to wineries and waste management. 

Fintech Startups Leapfrog Old Technology to Help SMBs Grow
When Stripe introduced an innovative technology in 2009, it enabled e-commerce and mobile app-based companies to eliminate friction around payments. It paved the way for the fintech sector to introduce an array of new products and services to market - faster and cheaper. Plaid is another example of a modern API that underpins modern banking, payment, and benefits solutions. Today, thousands of financial institutions and digital fintech services use Plaid.

From the ground up, innovative startups continue building leading-edge tech stacks with modern APIs that drive down the cost of building benefits and payroll platforms for SMBs and their mobile workforce. Xiggit bucked old technology and created a better path like others before us. We've eliminated the hassle, cost, and complexity of integrating with hundreds of other banks, money management, and payroll systems. By doing this, we've introduced a broad suite of high quality, low cost, voluntary benefits that let small business owners forget about the hassles of benefits, so they can focus on rapid hiring while retaining hourly workers longer.

Embed is another cutting-edge fintech company that leapfrogged older technology and blazed its trail. The company set out to build the best clearing and custody solution to serve broker-dealers, RIAs, banks, trust companies, and licensed fintech startups. Embed chose to take a modern approach to build everything in-house, and they only use a vendor where necessary. The result is a full-stack platform, from the API layer that clients interact with to power their product down to the DTCC (Depository Trust & Clearing Corp), which provides clearing and settlement services to the financial markets. Fewer vendors in the middle mean fewer mouths to feed, fewer points of failure in the system, and lower prices for clients that benefit their respective customers.

A company retirement program based on IRAs, not a 401K, can be a better fit for SMBs and their workers for many reasons. 401K plans aren't the best remedy for low-wage hourly workers who accumulate small 401k balances and change employers every few years, which is about half of all working Americans. These 401k accounts tend to get cashed out or lost when an employee changes jobs because the accounts are not portable. It's also hard for most people to save more than 10% of their income. Therefore, a worker making $60,000 or less is unlikely to save more than $6,000 each year, but the business owner might benefit from higher contributions. In combination with the Roth and Traditional IRAs, IRA programs like the SIMPLE and SEP enable annual contribution levels similar to the 401k annual limits and the flexibility and portability that workers need. 

Payroll deduction IRA programs are easily connected to SMBs' payroll, eliminating the program's manual overhead. Business owners process payroll as usual and let the systems automate contributions from employee payroll to their retirement accounts. An IRA program simplifies ERISA compliance burdens placed on business owners. IRA programs don't allow employers to invest retirement matches directly into the IRA. Some companies, however, include other savings, financial wellness, and matching benefits with their IRA. This novel approach gives employers a way to take care of employees and boost their financial health.   

Startups that have embraced modern tech stacks and APIs enable others, like Xiggit, to bring new voluntary benefits to high turnover industries such as retail, restaurants, construction, etc. It's clear old school, generic employee benefits don't work anymore. As a result of the Great Resignation, these industries and many others that employ hourly workers struggle to bring back employees who are unwilling to return for the same compensation. 

Thankfully, the technology exists today to support SMBs in providing affordable financial wellness benefits to hourly employees down market. And it's no surprise that the market is witnessing a plethora of nimble, neo-banks and fintech solutions to replace status quo offerings based on rigid, aging tech stacks. The rise of modern tech stacks and neo-benefit startup providers are enabling new products like Xiggit's voluntary benefits for SMBs to flourish, helping to level the playing field for the 82 million hourly workers and their employers. It's about time.