Emergency savings benefits may help ease employees’ money stress while improving their overall financial well-being. It can help provide a boost to morale, job satisfaction, and productivity. Emergency savings benefits can also reduce presenteeism and absenteeism; and enhance recruiting and retention, resulting in improvements to a company’s bottom line. These benefits may even help improve retirement plan participation.
New research from BlackRock’s Emergency Savings Initiative, conducted by Commonwealth and the Retirement Research Center at the Defined Contribution Institutional Investment Association (DCIIA) found that offering an emergency savings benefit may be especially impactful for low-to-moderate-income (LIM) workers.
According to the report, cited in a recent BenefitsPro article, “Millions of people lack access to high-quality, low-cost tools to save for the unexpected. Providing an emergency savings account through the workplace is foundational to increasing financial security and ultimately building wealth for workers earning LMI. The employer sponsors and recordkeepers of defined contribution workplace retirement plans are uniquely positioned to provide quality emergency savings products to plan participants.”
According to the report, emergency savings benefits are a good way to engage employees in financial benefits offerings. Employees value benefits designed to help foster overall financial well-being; as such, these benefits can help employers simultaneously invest in and connect with their workforce.
The report also showed that having an emergency savings account made a difference. Survey respondents with specifically designated emergency savings accounts had more liquid savings than those who saved for emergencies but didn’t have an earmarked account. Having little to no liquid savings increased the likelihood that employees would take a loan or hardship withdrawal from their 401(k) or otherwise lower retirement savings contributions. “‘Survey respondents with less than $2,000 in liquid savings were twice as likely to have tapped into their retirement plan accounts,’” the report said. “‘This was also true of the 34% of respondents who did not save for emergencies once the pandemic started.’”
The research also recommended specific features of emergency savings accounts that could entice LMI workers to participate, including being able to access their emergency savings without penalty and eliminating minimum account balances and account access fees. The recent passage of SECURE 2.0 paves the way for employers to offer emergency savings benefits and encourages participation in retirement plans, too.
“‘The passage of SECURE 2.0 validates the important role that employers play in employee financial well-being, particularly building emergency savings. The emergency savings provisions will allow employers to further drive employee savings through research-backed design features like automatic enrollment for in-plan emergency savings vehicles through retirement plans,’” Nick Maynard, SVP at Commonwealth, said. “Even before the provisions from SECURE 2.0 are enacted in 2024, employers have the opportunity to meet a key need of their diverse employee base, and advance their financial security, with proven mechanisms that have been tested with large employers, retirement service providers, and payroll providers.”
