Why Employers Are Launching Emergency Savings Programs

Pandemic accelerates employers focused on financial wellness benefits

For years, "money matters" has been the top source of stress by a long shot for essentially anyone over 20. Covid-19 only made matters worse, with 90% of Americans saying the pandemic is causing financial stress. Americans' were already in a tough spot financially, with 40% not able to handle a $400 unexpected expense¹ and tens of millions taking on debt and making bad financial decisions every year, only making matters worse.  

Why Employers Are Launching Emergency Savings Programs

Stress carries over into every aspect of life. When Americans are stressed from their finances, this stress shows up at work, with 58% saying financial stress negatively impacts their work. These financially stressed employees are costing employers potentially over $1 trillion every year due to lower productivity, increased medical expenses, unwanted turnover, mistakes, accidents, and more. Further, there is no age group, income range, or industry spared: financial stress and the negative impacts at work impact everyone.

With stats like this, it is no wonder that more and more companies have made "financial wellness" a more significant focus, working to reduce stress and counter the costs impacting employers.  Accelerated by the pandemic, an already increasingly popular concept has shot to the top of the financial wellness list for many employees as their go-to solution, emergency savings accounts (ESA). 

So, why should companies go the extra mile to offer emergency savings accounts to their employees? The answer is simple - when employers consider how popular emergency savings is with employees, with up to 87% saying they would participate if their employer offered such a program.  

Juan G. Hernandez Ariano, director of WealthCreate Financial in Spring, Texas, told Financial Advisor in August 2020, "About a year ago, the conversations were more about 'How can we set aside money for retirement?', 'How can we set aside money for college?' But I would say 50 percent or 60 percent of the conversations right now are about 'How can we set aside more money for emergencies?'" ²

During a research, we have found that employees prefer emergency savings over any other "new" benefit an employer can provide by a wide margin. We found employees prefer emergency savings over student loan repayment by a 4 to 1 margin and over financial wellness coaching by a 5 to 1 margin.  

And for employers, there is likely no benefit that packs a better return on investment. Good benefits are those that employees like and use and carry a minimal investment in time and money for employers. With emergency savings, no other benefit outside of 401(k) or health care is likely to get an adoption rate as high as emergency savings, typically around 40-50% based on our projections, and with the Consumer Financial Protection Bureau (CFPB) providing a path towards auto-enrolment, that number could exceed 90% in the future.  

Emergency savings also creates a tremendous return on investment potential for employers. The research is clear that there is no better way to support an individual's financial wellness and ensure good long-term financial habits than having an emergency savings fund. Employees with emergency savings are less likely to take hardship withdrawals, loans, or payroll advances. They are also more likely to participate in workplace savings programs and will retire on time and see improved health due to lower stress, leading to lower health care costs for their employer.  And all of this from a benefit that comes at a fraction of the investment over other financial wellness programs.  

Emergency Savings Is Here to Stay

The numbers behind financial stress and short-term savings, along with the popularity and high ROI potential, demonstrate the need for emergency savings is likely here to stay. And much like how Health Savings Accounts (HSAs) or 401(k) programs got their start, look for growing regulatory support of the concept of ESA. More and more employers will begin to deploy solutions, and emergency savings will become a table stakes benefit program for most employers in the years to come.

Employer-sponsored emergency savings is not a new concept; there is in-depth research and early products introduced in the market over the last few years. But with the pandemic, the interest in emergency savings programs has increased dramatically. Recent surveys from leading benefits brokers and 401(k) recordkeepers have shown that emergency savings are the top new benefit many large employers are exploring. And employees, when presented with the concept, choose emergency savings by far over any other solution. Recent research by the AARP showed that 70% of employees would participate in such a program if offered, going to 87% if there was a match on savings.⁴ 

What Does A Successful Emergency Savings Program Look Like?

For employers, a successful emergency savings program needs to be incredibly simple. HR and benefits teams are already over-taxed, especially during these crazy times navigating the pandemic. 

We are recommending to employers running their emergency savings programs to offer a one-time sign-up bonus of $20-$50, simply to help start the habit, and then $50-$100 per year, distributed in small amounts each paycheck so long as the employee maintains a minimum participation amount. In fact, in a survey by SoFi, employees said employer contributions to an emergency fund would have the most significant impact on their personal finance.⁵  A financial contribution helps motivate the employee to stick with it. Our research and experience show that this is the best approach for helping employees build their short-term savings,  being less stressed and better prepared. 

We believe a well-executed program can deliver upwards of 50% adoption and high levels of engagement. For employers looking for a more significant impact, the Consumer Financial Protection Bureau (CFPB) has even provided a path for employers to auto-enroll employees in an emergency savings program. If done correctly, an employer-sponsored emergency savings program can greatly impact employees with minimal investment in time and resources.

To get high adoption and engagement, the research is clear on what employees want. First and foremost, employees want control. They want to know they can access their emergency funds at any time, for any reason, without penalty or delay, or employer approval. Employees want a purpose-built app that makes saving easy and automatic, and they want to take the funds with them, if any, when they leave their employer. They also love the idea of a match, and our research has shown that a small match goes a long way.  AARP found 71 percent of employees would participate in an ESA if their employer offered it, even without a match. That number jumped to almost 90 percent if the employer offered a match to contributions.⁵

One reason ESA's are catching on is due to the less than popular alternatives that have been in the marketplace. In the beginning, 401(k) recordkeepers looked to bundle short-term savings solutions into existing 401(k) plans. These so-called "side-car" accounts made sense in the beginning, leveraging the 401(k) framework for fast deployment and ease of administration. But for most employers, they have found that side-car accounts, or emergency savings as a part of the 401(k), create more problems and confusion about the benefits. 

While 401(k) side-car accounts certainly offer the automation to make savings and matching contributions easy, it doesn't meet the need of employees who may need access to their funds quickly. The added withdrawal penalties can also add insult to injury, making employees even more stressed about their finances.

Emergency Savings Are Part of The Solution to The Impacts Of Covid-19

Being financially stressed to the point of physical ailment and muddled thinking is no way to live. But for many Americans, this is the problem they face every day, and the Covid-19 pandemic has only made it worse. But by simply offering employees the tools needed to save, it can drastically impact not only employee's lives but also the lives of their families and reflect on the business.  Happier, more engaged employees do better work and make more significant contributions in their roles, adding to a business's bottom line.

While saving for emergencies has always been part of a solid financial footing, there has been a little movement over the past two to three years in offering employees simpler, automated ways to save. However, the Covid pandemic has highlighted the need for emergency savings, and by 2028, we at Secure believe emergency savings are poised to be one of the most crucial benefit programs offered by employers.

Notes
¹ Report on the Economic Well-Being of U.S. Households in 2018 - May 2019, Federal Reserve, 2019
² COVID is Making an Emergency Fund Look Like a Great Idea, Financial Advisor, August 2020
³ Saving at Work for a Rainy Day, AARP, September 2018
⁴ Financial Wellness Benefits in a COVID-19 World, SoFi, July 2020
⁵ Saving at Work for a Rainy Day, AARP, September 2018

Devin Miller is the CEO and Co-Founder at Secure, Inc. Visit www.securesave.com Connect Devin Miller Follow @SecureSave1