Benefits Think

Why emergency savings accounts are dominating Q4 benefit conversations

 and hand is dropping coins into a mason jar labeled 'emergency' and half full with change
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What do you feel when you hear that 57% of Americans don't have the funds to pay for a $1,000 emergency? Chances are, you — like me — can identify with that situation, because you might've been there yourself.  

When we asked workers who have lived through such a financial emergency what it felt like, they often described drowning: traumatic and all-encompassing. 

Now imagine this personal financial vulnerability against a backdrop of inflation, millions of unfilled jobs, and workers going on strike. Is it any surprise that workers' top priority remains their financial security? 

Read more: '25 is the new 55': How to jump-start employees' retirement savings early in their careers

Some employers see their current responsibilities to employees end at pay and government-mandated benefits. Financial education and literacy, or the lack thereof, have become sole scapegoats for the poor financial outcomes we keep seeing among individuals. Often, leaders share their own personal bootstrap stories proudly as evidence that it's the workers' fault. 

Unfortunately, those same workers work in an imperfect system. Whether intentional or not, that system asks workers, whose current pay can barely cover rent and necessities, to also save for insurance and retirement, and then chastises them when they choose incorrectly or request hardship withdrawals. Employers are then frustrated that these individuals leave for small wage hikes, and shocked when their health premiums go up as their workers' health goes down. 

The ultimate relationship between an employer and employee stems from worker financial security. When this balance is off, the organization comes under fire from poor retention, productivity and well-being. In other words, the organization is paying more in costly overhead and potentially losing revenue when their workers struggle financially. 

Read more: Financial education can help employees keep their retirement savings intact 

So, it's not just about doing good — it's about building a growth-capable organization. 

Emergency savings programs are driving better retention and real savings behavior. We recently conducted an internal study of a 700-person employer that rolled out a workplace emergency savings program in January 2023. Throughout the turbulence of the ensuing nine months, we were pleasantly surprised about the impact the program has had. 

Some highlights: 52% of employees making low and moderate wages participated, saving nearly $2,100 per year on average. From initial rollout to now, several withdrew from their emergency savings, which is important – and then a whopping 82% increased their savings contributions. Employee testimonials affirmed the well-being improvement already correlated with higher emergency savings. 

Here's where it becomes most interesting: we discovered a 33% lower turnover in the participating pool. Even if you consider selection bias, this is a major result — saving the organization hundreds of thousands of dollars in turnover costs. 

Read more: Emergency savings accounts can help achieve benefits equity

We're excited to uncover more lessons to come, like how are emergency savings impacting healthcare costs? If recent data from the Financial Health Network is any indication, we hypothesize better self-reported mental and physical health as employees become more financially resilient. 

What's becoming increasingly clear is that emergency savings serves as the foundation of a new retirement savings framework. One of the biggest threats to America's retirement security is the growing leakage due to plan loans and hardship withdrawals: 37% of plan participants have tapped their retirement savings early. Thought leaders have also uncovered that BIPOC and female populations are more likely to draw from their retirement savings, in part due to having little to no emergency savings. 

Though we see this smoke turning into fire, some plan sponsors and consultants remain dubious, arguing that emergency savings contributions could "steal" from retirement savings contributions. That doubt in turn has delayed the response to the growing crisis. 

Read more: How SECURE 2.0 pushes employers to support emergency savings

Research and recent rollouts have disproved this cannibalization fear. In fact, emergency savings programs have lowered retirement savings plan leakage. For employees who are not yet saving for retirement, emergency savings is acting as a stepping stone, as we found in our own rollouts in the hospitality sector. And for those already participating, it's given financial confidence to increase contributions. Delta found ESA participants were twice as likely to increase their retirement contributions, among other great retirement plan results.  

What has emerged is a new framework for retirement savings, where an emergency savings benefit is not an add-on, but rather foundational to the health and security of workers' hard-earned retirement benefit. Based on Congress' recently passed Secure Act 2.0 with emergency savings provisions, we are already on the way to adopting this way of thinking. 

Emergency savings programs are both good and great. They improve worker financial health while delivering better business results. With Q4 strategy conversations already well underway, delivering the message about employer-sponsored emergency savings programs is a natural solution to fulfill employers' fiduciary duty as retirement plan sponsors. With workers more focused on financial health than ever, now is the time for organizations to act, and meaningfully improve financial outcomes for companies and employees alike. 

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