COVID-19 Highlights the Need for Workplace Emergency Savings Programs

About 31% of people in the United States have faced negative economic impacts from the COVID-19 pandemic, according to a recent report from the Commonwealth Fund. Those economic effects include being unable to pay for basic necessities like food, heat or rent, using up personal savings, borrowing money or taking out a loan.

According to the report, 27% of Americans lost a job or source of income because of the pandemic.

COVID-19 Highlights the Need for Workplace Emergency Savings Programs

Unfortunately, many U.S. households are likely without a cushion to help absorb the economic shocks caused by the pandemic, since more than half (53%) have no emergency savings fund, according to a 2019 AARP Public Policy report.

“Workplace emergency savings programs are one way employers can help workers prepare for the unexpected,” suggests Kevin Boyles in his article “Workplace Emergency Savings Programs: Helping Employees Save for a Rainy Day,” in the July issue of Benefits Magazine. Boyles is vice president of workplace savings solutions at Millennium Trust Company, LLC.

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“Few events communicate the importance of workplace emergency savings funds as eloquently as the coronavirus pandemic. Quarantines, unpaid sick leave, reduced work hours, business closings and layoffs are creating financial issues for many people in the United States. Some households have emergency savings to help them cope with virus-related financial shocks, including medical bills. Many do not,” Boyles writes.

Options for Workplace Emergency Savings Programs

Having emergency savings can improve employees’ sense of financial security and also may improve retirement outcomes. In addition, research shows that a majority of employees would be interested in participating in a payroll deduction emergency savings program if their employer offered one.

Options for offering workplace emergency savings accounts include the following:

  • Payroll deduction savings accounts: Employees have a portion of their after-tax pay directed to savings accounts that they have opened at an outside financial institution.
  • Payroll deduction Roth individual retirement accounts (IRAs): Employers make it possible for employees to have a portion of their after-tax pay directed to a Roth IRA that employees open.
  • Repurposed retirement accounts: Employers repurpose qualified retirement plan accounts by adapting after-tax contribution accounts or establishing deemed IRAs. For example, many 401(k) plans have provisions that allow participants to make voluntary after-tax contributions. These accounts can be used for special purposes like an emergency savings account.

Education is an important component of any workplace emergency savings program, Boyles contends. Employers need to educate participants about the importance of savings, including the difference between saving for retirement and emergencies.

Over the long term, Boyles notes, the impact of such programs will likely be felt by employers and employees alike. “When workers are financially secure, employers reap a myriad of benefits, including improved engagement, productivity and retention.”

[Related Reading: Three Steps to Help Employees Improve Their Financial Standing]

Kathy Bergstrom, CEBS
Kathy Bergstrom, CEBS
Senior Editor, Publications at the International Foundation of Employee Benefit Plans

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