The Atlanta Journal-Constitution
Employers can enroll workers in emergency accounts
Linking savings to a retirement account is just one option.
Starting this year, a federal law allows employers to enroll workers in emergency savings accounts that are linked to their retirement accounts. But some companies, put off by the law’s complex rules, have begun offering rainy day benefits outside workplace retirement plans.
“I do think there is tremendous interest in emergency savings programs,” said Matt Bahl, vice president and head of workplace financial health at the Financial Health Network, a nonprofit that promotes financial well-being. “Having access to liquid cash can greatly reduce levels of financial stress.”
The Employee Benefit Research Institute, a nonprofit, found that about three-fourths of large employers (those with 500 or more workers) offered or planned to offer hardship or emergency assistance programs to workers last year. Of those, about onethird said they offered an emergency savings account feature and another third planned to do so in the next year or two.
But while the law, known as Secure 2.0, has helped draw attention to the need for rainy day savings, its rules for setting up emergency accounts within retirement plans are “clunky,” Bahl said. For instance, only workers making under a certain income limit ($155,000 for 2024) may participate, and their emergency savings are limited to $2,500, although employers can set lower ceilings. And although employers can help with contributions, they must deposit any match into the worker’s retirement account — not the emergency savings account.
While employers may eventually choose to offer such “sidecar” savings accounts, stand-alone emergency savings programs are already available from financial technology startups and established retirement plan administrators. With emergency savings offerings, “it’s really important to be broadly available and simple to use,” said Emily Kolle, a vice president who oversees the emergency savings offering from Fidelity Investments, one of the largest retirement plan administrators.
Emergency savings — a cash cushion available in the event of a job loss or surprise expenses like car repairs or medical bills — are a concern for many Americans. In a recent survey by Bankrate, about one-third said they would have to borrow to cover a $1,000 unexpected expense. Almost one-quarter of consumers have no savings for emergencies, according to the Consumer Financial Protection Bureau.
The Secure 2.0 law has two main provisions aimed at helping workers cover surprise expenses. First, it allows employers to automatically enroll workers in emergency savings plans tacked on to their 401(k) accounts. (Standalone account offerings, in contrast, can’t sign up workers by default; employees must choose to enroll.)
Second, employers may let workers withdraw up to $1,000 a year, without penalty, from retirement accounts to cover surprise expenses. (Employers may already offer “hardship” withdrawals from retirement plans, but workers typically owe a 10% tax penalty if they are younger than 59 1/2, in addition to ordinary income tax on the amount withdrawn.)
Tom Armstrong, vice president of customer analytics and insight at financial services firm Voya Financial, said its data showed employees lacking adequate emergency savings were 13 times as likely to take a “hardship” withdrawal from a retirement account and 30% more likely to decrease retirement contributions.
Some employers have started offering rainy day savings tools outside their workplace retirement plans. Details can vary by employer and provider.
In January, for instance, Whole Foods Market began offering an emergency savings program through Fidelity. Workers can have funds deposited through payroll deductions and withdraw them when needed. It joined companies like Delta Air Lines, which began offering an emergency savings program through Fidelity in January 2023.