When it comes to job perks, high earners usually benefit the most. Beyond ping pong tables or unlimited PTO, this trend shows up dramatically in pre-tax benefits like 401(k) plans, health savings accounts (HSAs), and commuter benefits. This might not be surprising, considering that 401(k)s were originally created to defer taxes on bonuses, and that by 1983 “nearly half of all large firms offered, or considered offering, a 401(k) plan.” However, shift workers and lower earning workers can also benefit from these programs–and the fact that they aren’t even enrolling is a huge failing. 

What Are Pre-Tax Benefits?

Pre-tax benefits are built to help employees save on taxes while covering important expenses. The most common examples are putting money into a 401(k) for retirement or using a flexible spending account (FSA) for medical costs. Pre-tax transit benefits work the same way. They let employees use dollars that haven’t been taxed to pay for commuting costs, like train tickets or parking.

401(k)s and Other Pre-Tax Accounts

Pre-tax transit benefits are a lot like 401(k)s and other pre-tax accounts. In both cases, employees can decrease their taxable income, leading to tax savings. Today, high earners are the ones who take full advantage of these benefits, but for lower earners and shift workers, the savings can be even more valuable.

The Utilization Gap

Despite the benefits, shift workers and lower earners are less likely to use pre-tax benefits. Here’s why:

1. Lack of Awareness: Many shift workers don’t know these benefits exist or how to use them.
2. Hassle Factor: Signing up and managing pre-tax benefits can be a pain, especially for those with unpredictable schedules, or using clunky legacy benefits providers.
3. Employer Support: It can be challenging for employers to regularly communicate to shift-based employees in the field, and employers might not push these benefits aggressively enough. Often communication falls to location managers, who may not be as informed about benefits.
4. Benefit Design: Even well intentioned benefits like a 3% match can be a hard sell for employees. The impact of a 3% reduction in pay now for lower earners can be a challenge, even if it means 3% more later.

401(k) Insights from Vanguard

A recent report from Vanguard shows the inequality of 401(k) distribution. The bottom 20% of earners take in just 6% of contributions–meanwhile, the top 20% receives 44%. Most 401(k)s are structured as a percentage match–so it is no surprise that these are our outcomes. But it demonstrates the failure in our typical system design.

Shift-based workers aren’t benefiting from 401(k)s. We could advocate for a design change, like employers eliminating the percentage match and instead contributing a dollar amount. Or we could encourage employers to supply a pre-tax benefit that we know shift-based employees would actually use – pre-tax transit benefits.

Solving a Systemic Problem

But even pre-tax commuter benefits have their challenges. A 2019 study from Andrea Hamre at Virginia Tech in the Journal of Transportation Demand Management found immense disparities between earners for commuter benefits too. 

Even among employers offering transit benefits, workers in the lowest 20% of earners had the lowest likelihood of being offered transit subsidies. The likelihood of being offered these benefits increases with each higher income quintile. What’s happening here is a failure of communication, leaving lower earning employees out in the cold, and creating an inequitable distribution of benefits. 

Bridging the Gap

To close the gap, we need a few key strategies:

1. Benefit Selection: No one questions that we need a solution for retirement, but often the reward feels so distant to workers. Subsidizing transit is a benefit for workers now.
2. Education and Awareness: Employers should actively and consistently educate employees about pre-tax benefits, including transit, and how they can help.
3. Simplified Enrollment: Making the sign-up process easier can help more shift workers start saving.
4. Targeted Communication: Tailoring messages to the needs and circumstances of shift workers can boost participation.

What can we do now?

At Jawnt, we’re dedicated to improving the commuter benefit experience for shift-based workers and advocating for employer support. Our product has been built to streamline enrollment, and worker communications are central to our onboarding process.

Pre-tax transit benefits are a great way for shift workers to save money, and for employers to retain their talent. By learning from the inequity of current pre-tax subsidies, employers can take steps to make sure these benefits are available and used by everyone, no matter their income. It’s time to do right by those who need it most and help make commuting affordable for all workers.