Recent data shows that more than 44% of employees would need to borrow money if faced with an unexpected $1,000 expense. Without emergency savings to fall back on, common solutions include tapping their credit cards, loaning money from friends or family, borrowing from their 401(k), or applying for a personal loan.
Macro Trends that Impact the Employee Savings Gap
Several macro trends contribute to the growing savings gap. From the same Bankrate survey cited above, nearly two-thirds of respondents (63%) say that high inflation has eroded their purchasing power and left little room to save for emergencies. Similarly, paycheck-to-paycheck living has become the norm for many employees: today, nearly 78% of Americans live paycheck to paycheck, across all income levels – up six percent from last year. These macro factors perpetuate a cycle of financial fragility that undermines savings efforts for both hourly workers and high earners.
How HR Teams Are Taking Action
HR professionals play a critical role in addressing the emergency savings crisis among employees. When employees feel financially resilient, they can bring their best selves to work each day, creating a healthy and productive workplace. Here are a few key ways that HR teams can take action and bridge the employee savings gap.
Establish Sidecar Emergency Savings Accounts (ESAs)
New SECURE 2.0 provisions allow plan sponsors to establish emergency savings accounts (ESAs) as sidecar accounts sitting next to a regular 401(k) account under their retirement plan. Employers may auto-enroll participants into ESAs at a rate of up to three percent of compensation. Withdrawals from ESAs are penalty-free, and employees can take up to four withdrawals on a no-fee basis at a frequency of once per month. This, and other exciting provisions under SECURE 2.0, empower employers to take a more active role in creating programs to promote emergency savings among employees.
Match Emergency Savings Account Contributions
In addition to establishing emergency savings accounts, consider offering a match. Under SECURE 2.0, ESAs are eligible for matching contributions at the same matching rate established under the retirement plan. Offering an emergency savings match can serve as a powerful incentive for employees to prioritize saving for unexpected expenses, complementing their retirement savings efforts. By aligning the matching rate for emergency savings accounts and retirement plans, employers can encourage employees to build both short-term and long-term financial security.
Offer a Trusted Financial Wellbeing Program
Employers can also play a pivotal role in offering financial wellness solutions that empower employees to take control of their financial futures. By providing educational resources, interactive tools and calculators, and trusted 1:1 guidance from Financial Planners, each individual can get the support they need to start toward or reach their emergency savings goals.
Personalized support means employees get tailored guidance based on their unique financial situation and goals. This helps them create a realistic plan for building and maintaining emergency savings. Financial planners can offer insights on budgeting, debt management, investment strategies, and other key financial aspects, giving employees the knowledge and confidence to make informed decisions about their money. By offering trusted financial guidance, employers demonstrate their commitment to the financial well-being of their employees, fostering a culture of support and empowerment in the workplace.
Addressing the employee emergency savings crisis requires a multi-faceted approach to encompass individual behavior change, macroeconomic reforms, and employer-driven initiatives. By understanding the root causes of employee financial insecurity, employees can create a future where financial security is within reach for all.