PLANSPONSOR - September - October 2023 - 12

UPFRONT
A $1,000 Buffer Can Keep Savings Afloat
L
ow-income households with at least
$1,000 in emergency savings were
half as likely to withdraw money from
their workplace retirement
savings
accounts during the pandemic, according
to research conducted by BlackRock's
Emergency Savings Initiative in partnership
with the Defined Contribution
Institutional Investment Association's
Retirement Research Center and others.
The
findings,
appearing
in
" BlackRock's Emergency Savings Initiative:
Impact and Learnings Report 2019-2022, "
underscored the importance of emergency
funds as a buffer to keep employees from
depleting their retirement account.
Research cited from another ESI
partner, Voya Financial, showed that
participants with insufficient emergency
savings were 13 times more apt to take
a hardship withdrawal than those with
adequate savings.
Emergency
savings,
however,
when paired with a retirement account,
12 PLANSPONSOR.COM September - October 2023
encouraged retirement contributions.
Findings from the ESI and DCIIA's RRC
indicate that employees with emergency
savings were 70% more likely to contribute
to their defined contribution plan.
In conducting the study, the ESI
observed strategies, such as automatic
enrollment for short-term savings
programs,
that
increased participants'
adoption of emergency savings. Programs
that were active-choice opt out had a
median uptake rate, at 43%, that was more
than four times higher than the 10%
rate for programs in which people had to
proactively take action to start saving.
In-product prompts to contribute
to emergency saving-e.g., onboarding
screens or savings questionnaires-also
have encouraged participants to improve
this practice. Adoption of these methods
resulted in increased median uptake rates
(39%) compared with interventions that
relied exclusively on email campaigns to
nudge better saving behavior (7%).
Art by Cristian Turdera
Moreover, interventions that targeted
new employees had greater median uptake
rates, at 39%, than did projects that targeted
existing employees or members, at 8%. The
ESI report suggests this is likely because
new users are less habituated to saving at a
particular rate and are at a prime moment
for adopting a new behavior.
The report also recommended that,
to expand workers' ability to
save for
an emergency, they should be offered
in-plan, after-tax options, as well as out-ofplan
options.
More than half, 58%, of the bottom
quarter of earners, however, are without
access to an employer-sponsored retirement
plan. Therefore, many low earners
need an emergency savings option distinct
from a retirement plan, in the manner of a
separate account.
SECURE 2.0 retirement law contains
two main provisions related to emergency
savings, which take effect in 2024; both
are optional for plan sponsors. The first
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