Emergency savings accounts: the next hot workplace benefit?
Thursday, October 17, 2019
It's open season at workplaces across the United States this month. Nope, I'm not talking about team building hunting trips.
I'm talking about hunting for the best employer-provided benefits for you and your family.
Last year, the big new benefit that bosses were offering was a tax-favored ways to pay off student loan debt. That's still a big draw, with more companies eyeing this option to attract and keep workers, especially younger ones with huge college debt loads.
But we're always looking for the new and shiny. This year, emergency funds are attracting employer and employee attention.
The reason for this potential workplace innovation/intervention? A large percentage of workers aren't saving for rainy days.
Little money in emergency funds: Last year, for the sixth year in a row, the Federal Reserve reported that approximately 40 percent of American households would struggle to cope with a $400 unexpected expense, such a car repair, home emergency (like a plumbing disaster) or a medical bill.
That fiscal insecurity is underscored in the recent US Financial Health Pulse, a nationally representative survey of Americans ages 18 and older designed by the Financial Health Network in collaboration with the University of Southern California. That poll found that 53 percent of U.S. households have no emergency savings account.
That means millions of Americans are just one bad surprise away from financial disaster.
Ways folks with no discretionary funds deal with such emergencies are not ideal.
In many cases, they turn to high-cost products like payday loans that could trap them in a cycle of debt.
Those with retirement savings take out loans on or withdraw those funds, paying potentially hefty tax penalties now and undermining their future financial stability.
On-the-job effects: These emergency spending situations and decisions also can affect the financially strapped workers' job performances.
PwC's 2019 Employee Financial Wellness Survey found that 35 percent of employees report that issues with personal finances have interfered with their work duties.
Nearly half (49 percent) of those who are distracted by their finances at work say that they spend three hours or more each week while on the job thinking about or dealing with issues related to their personal finances.
One in five (20 percent) employees admits that productivity at work has been impacted by financial worries. Others acknowledge that they have taken time off work to deal with financial matters.
Such workplace-related financial brooding extends across all age groups, according to the PwC survey. The breakout of employees who say that issues with personal finances have been a distraction at work is 49 percent of Millennials, 31 percent of Gen X and 16 percent of Baby Boomers.
And, says the PwC report, stressed employees are more likely to leave for another employer that cares more about their financial well-being.
Forestalling employer implications: All this data means that workers' financial troubles often translate to employer troubles, too.
As employers increasingly come to see emergency savings as a key factor in their employees' financial well-being, more companies have been exploring a separate benefit to help encourage workers to put away money for some unforeseen contingency, reports Employee Benefits News (EBN).
Catherine Harvey, senior policy adviser at the AARP's Public Policy Institute, has focused on how workplace emergency savings benefits could be structured, what features would make them most attractive and how to motivate employee participation. Her analysis is detailed in the organization's white paper "Unlocking the Potential of Emergency Savings Accounts."
"There's a lot of evidence from behavioral science about what makes employer-based interventions effective, and not surprisingly one aspect of an effective program to maximize participation in an employee benefit is to make participation really easy," Harvey told EBN.
Templates in place: Other workplace benefits already face this challenge.
Defined contribution plans like 401(k)s, for example, take the employees' portions out of each paycheck. To increase participation, many workplaces have gone to automatic enrollment, requiring workers to opt out of the retirement savings.
A similar approach could be used for emergency savings workplace plans.
"That's where we think automatic enrollment, that frictionless enrollment, really distinguishes this from everything else that's on the market right now," Harvey told the benefits publication.
Employer matching of employee emergency contributions also is a big factor.
An AARP survey found that "the power of the employer match, which speaks to the incentive behind savings as being a very important feature — one that basically blows all of the other features out of the water," said Harvey.
No immediate tax benefit: Of course, the big difference here is that the emergency savings plan would not have any tax advantage.
Regular 401(k) contributions are tax-deferred. Roth 401(k) money is tax free.
But just getting workers to save, and making it easy for them to do so, for potential small or large emergencies could be a popular workplace benefit even without a tax break.
If such an on-the-job financial option is appealing, you might want to talk to your company. It might show up at benefits enrollment season next year.
Picking current workplace perks: In the meantime, this is the time of year when most U.S. companies let their workers pick their perks for the coming year.
With or without rainy day funds and student loan savings, there still are many employer-provided benefits.
In addition to 401(k) plans, which as noted earlier are common in workplace benefits packages in either traditional tax-deferred or Roth tax-free versions, some of the more popular tax-saving workplace fringe benefits include:
- Health care coverage, including high-deductible medical insurance plans for which you can establish a health savings account (HSA),
- Financial education assistance for you or family members and
- Child care and medical flexible spending accounts (FSAs).
Regardless of what benefits your company offers, shop carefully during your annual open enrollment season that, for many, starts this month. My earlier post suggesting 5 things to consider in choosing workplace benefits can help.
You also might find these items of interest:
- 401(k) Do's and Don'ts
- Comparing tax-favored HSA, HRA & FSA medical options
- New IRS guidance expands high deductible health plan HSA options to chronic medical conditions
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