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FINANCIAL WELLNESS | EMERGENCY SAVINGS
people to achieve success are more likely
to be employer-based than individually
based. "
A growing number of employers has,
for all of the above reasons, begun to look
at ways to incorporate emergency savings
vehicles into their benefit programs.
Those interested in implementing
an emergency savings program should
consider the following:
* There are several ways to implement
workplace emergency savings. A 2019
research paper by academics at Harvard,
Yale and Brigham Young universities and
the Wharton School at the University of
Pennsylvania advocated for the creation of
workplace emergency savings accounts.
The paper outlined three possible routes
employers could take: after-tax employee
contributions to a 401(k); a " deemed "
Roth individual retirement account (IRA)
under a 401(k) plan; and depository institution
accounts outside a 401(k).
The first two methods offer the
advantage of an existing infrastructure
that makes it easy for employers to quickly
set up a new program; however, it could
take slightly longer for employees to access
the funds in their account should an
emergency arise. There may also be some
complicated tax issues to consider if the
account generates taxable earnings.
Using a depository institution, on
the other hand, has the benefit of instant
access to and no limit on potential contributions;
however, there is no favorable
tax treatment for earnings. This may also
be a good option for employers that want
to provide emergency savings but have
no existing retirement benefit program,
the paper posited.
Cimini says, while plan sponsors
should think through whether it makes
more sense for them to go in-plan or outof-plan,
there is no right or wrong decision.
" There are some nuances, but both of
these options work, to the extent that they
get folks saving something for a rainy day, "
he says. " It's up to the sponsor to choose
which aligns better with its employees. "
* Plan design should emphasize
" Just getting employees over the hump
where they get a text or a notification
from their emergency fund provider
that says, 'Congratulations, you've
reached $500,' is really important. "
liquidity. Unlike with retirement plans, the
goal of an emergency fund is to let participants
access the cash in the fund at any
time and not worry about losing their principal.
One viable design might be similar to
a common health savings account (HSA),
which keeps a set dollar amount-say
$2,000-in cash or liquid assets and then
allows accountholders to invest a portion of
any balance exceeding that amount, says
Mike Webb, a senior financial adviser with
CAPTRUST in Newton, New Jersey.
* The employer cost is relatively low.
Unlike some other new benefit programs,
the time and money required by employers
to get an emergency savings program up
and running is relatively low, says Daniel
Bryant, president of national sales, retirement
and private wealth at Sheridan Road
Financial, part of Hub International, in
Northbrook, Illinois.
Each individual account may have
a nominal setup fee, which the employer
can either cover or pass through to
participating employees. Beyond that, the
employer simply needs to connect the
account to its payroll system, which should
have already been done if it uses a 401(k)
provider. " The benefits outweigh the
costs for all of these things, " Bryant says.
" You're getting employee peace of mind
and lowering their financial anxiety. Both
of those things make the employee more
'present' and more productive.
" Just getting employees over the
hump where they get a text or a notification
from their emergency fund provider
that says, 'Congratulations, you've
reached $500,' is really important, " Bryant
observes. " For most of them, that's more
than they've saved in their entire life. And
then they want to make it $1,000. "
Some employers implement a match
for a retirement plan, which can require a
significant investment for employers; the
lower dollar amounts saved in an emergency
savings vehicle make it an easier
financial lift for many employers. " You can
come up with a low-cost matching system
formula where the benefit significantly
outweighs the cost, " says Webb.
* Education matters. As with most
benefits, the success of an emergency
savings account program hinges on the
education of participants into how it
works and the advantages they will enjoy
by opting into it.
" It's helpful to look at all of your benefits
and communicate them to employees
holistically, " says Dave Amendola, senior
director, retirement at Willis Towers
Watson in Fairfield, Connecticut. " If you
have a benefit that is not necessarily tied to
emergency savings but is aimed at helping
them address financial well-being-
or well-being in general-tying those
together and communicating the holistic
value of the benefits is very helpful. "
Amendola suggests taking advantage
of any vendor communication materials or
programs that might be useful.
" Education campaigns can target
every employee under age 30-they're the
ones who need this, " he says. " And provide
information to new employees about the
broad strokes of financial planning. "
Employers may find that some
workers are more receptive to benefits
information than they were preCOVID-19,
having seen first-hand how
quickly financial emergencies can arise,
Bryant says. -Beth Braverman
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