Uber Inc. is helping its drivers in Boston obtain discounted individual retirement accounts, part of an expanding system of perks for the contract labor force at the heart of the ride-hailing company’s business.
The retirement accounts are managed by Betterment LLC, an online investment service based in New York. Uber drivers will be able to open a Betterment account through the Uber app and will pay no fees on their investments for the first year, Uber said Wednesday.
Uber said it hopes to expand the program to the rest of the country. In addition to Boston, the initial test markets are Seattle, Chicago, and New Jersey. The company has about 20,000 drivers in the Boston area and 600,000 nationwide.
“It’s really about saving for the long term,” said Rachel Holt, Uber’s general manager for the US and Canada. “What we’ve seen is that this is a problem not just for independent workers, but a problem for Americans in general.”
The new offering could help Uber compete with a smaller mobile app-based car-hailing company, Lyft Inc., for the loyalty of drivers, many of whom use both services to find fares. Lyft also offers discounted IRA services through a third-party service called Honest Dollar, along with savings on fuel, tax software, and car rentals.
Unlike 401(k) plans, which are sponsored by employers, these accounts won’t get contributions from Uber; the drivers contribute their own money. The distinction is critical for Uber, which has been roiled by controversy over the employment status of its drivers. Uber treats its drivers as independent contractors rather than full-fledged employees, a decision that saves the company money because it doesn’t have to remit payroll taxes or bankroll employee benefits.
Uber says the arrangement is also better for drivers, who aren’t locked into a specific work schedule and can drive with Uber to make ends meet between other jobs. But the company has faced serious legal questions over that labor model.
The most prominent challenge is a federal lawsuit, led by Boston-based employment lawyer Shannon Liss-Riordan, that asserts Uber drivers should actually be treated as employees.
A federal judge recently rejected a proposed $100 million settlement of that lawsuit, saying the payments were too small considering the much larger damages Uber might face if it lost the case at trial.
Uber has arranged for other discounts and special services for its drivers, including health insurance recommendations, savings on car repairs, and cheaper wireless plans. Drivers also can qualify for discounts on new car purchases and flexible car leases for low-credit borrowers offered by an Uber subsidiary.
In a conference call with reporters, Holt declined to say if Uber executives considered whether the retirement-account discount would tread too near the line of traditional employment benefits for a company fighting to maintain an independent-contractor workforce.
But Michael C. Harper, a Boston University law professor, said the benefit isn’t likely to affect the argument over the drivers’ employment status, which already faces a long list of legal challenges.
“We can expect further litigation on the issue, and they’re certainly far from being out of the woods on the determination that these drivers are independent contractors,” Harper said. “I just don’t think this would be a key factor.”
The Uber deal marks a first for Betterment, a company in the nascent field of automated investment tools that is trying to expand into retirement planning, as well.
The New York-based company is known as a robo-adviser because it uses computer algorithms to develop automated investments for clients. Betterment pitches itself as a cheaper online alternative to traditional money managers, and most of its portfolios are made up of exchange-traded funds, which tend to have lower fees. Earlier this year it also began managing 401(k) plans for businesses, and the Uber partnership is its first handling individual retirement accounts for another company.
After the first year Betterment will charge Uber drivers a fee of 0.25 percent on the balances in their accounts. The company’s fee schedule ranges from 0.15 percent to 0.35 percent, on the low end of what most money managers and mutual funds charge.
Uber drivers who open a Betterment account will be asked a series of questions about their goals, retirement plans, and assets to determine their investment possibilities and appetite for risk.While gaining in popularity, robo-adviser firms are attracting attention from regulators such as Massachusetts Secretary of State William Galvin, who has questioned if these automated systems offer consumers enough protection and warnings about their limitations.
Betterment chief executive Jon Stein said the Uber contract will allow the startup to reach a broad swath of independent contractors who might not otherwise have access to modern retirement services.
“We’re excited about this particular opportunity because Uber’s the best partner and the best way into helping this market of hundreds of thousands — millions — of independent contractors,” Stein said.