The pandemic was a huge financial stress on many people. So, offering benefits, like emergency savings accounts funded by payroll deductions, is growing in popularity and one way you can help employees.
Recent research shows that 37% of U.S. households couldn’t come up with $400 for an emergency expense if necessary, and 52% of mid-income households don’t have the funds on hand to cover their expenses for the next three months.
Make saving convenient
Worrying about money can hurt employees’ productivity at work. Allowing them to contribute a portion of their pay to an emergency savings account makes saving more convenient, which can help alleviate their financial concerns.
Employees are interested in this benefit, too – 71% of people surveyed by AARP said they’d likely participate in a rainy-day savings program funded by payroll deductions if offered to them.
Emergency savings accounts also keep employees from seeking loans or early distributions from their existing retirement savings.
2 options for set up
For setting up emergency savings accounts, firms can: 1) create accounts directly within their existing 401(k) plans where employees can make contributions, or 2) allow workers to make contributions to an account at an outside financial institution.
Any employee contributions to emergency savings accounts must be taxed beforehand. Firms are also allowed to make matching contributions to workers’ accounts. In addition, contributions over a certain level can be put toward other investments – e.g., a 401(k).
Employers also need to decide whether the accounts will be managed within or outside your plan, and if employees must sign up to participate or if you’ll set up auto-enrollment.
Typically, these accounts are offered through third-party vendors. So, it’s key to do research to find one that best meets your needs.