Bipartisan bills spotlight a growing need for emergency savings programs

Inflation at a 40-year high. Economic uncertainty. Rising interest rates and housing costs. Retirement accounts and 401(k)s on a roller coaster. Lingering concerns about COVID-19. The list of financial worries, both current and long-term, seems to grow every day for average working Americans. 

The upshot? Nearly seven in 10 of us say we are "very" or "somewhat" worried about the possibility of a recession by the end of next year, according to a recent Bankrate survey. 

And what are we doing about that? The same Bankrate survey indicated that nearly half (47%) of us plan to cut discretionary spending, 30% plan to pay down credit card debt and more than a third (35%) plan to save more for emergencies.

That last number is not insignificant. And many employers have long supported the idea of creating emergency savings accounts for employees. Even prior to the pandemic, a 2018 U.S. Federal Reserve study suggests that as many as 40% of adults said they would struggle to afford an unexpected $400 emergency. During the pandemic, a Bankrate survey in mid-2021 found that 51% of Americans have less than three months' worth of emergency savings — and 25% said they have no emergency savings at all. 

Read more: Long story short: Employees need a financial boost — how you can help

The good news for concerned Americans everywhere: the U.S. Congress is currently considering several bills addressing retirement security in a number of ways. Importantly, these include the establishment of employee emergency savings accounts that would encourage participation in retirement programs, particularly for workers who may be hesitant to lock away money they might need in the next year or two. The legislation also would allow employees to complement their savings in such vehicles as 401(k)s and IRAs, and provide for penalty-free withdrawal from those accounts for unexpected life events. 

Emergency savings has been a policy priority of our member companies for years. I am happy to report that Congress, with strong bipartisan support (a rarity here in Washington, D.C.!) is promoting responsible emergency savings in a number of bills making their way through both the U.S. Senate and House, including:

Emergency Savings Act
Introduced as S.4310  by Senators Cory Booker (D-NJ) and Todd Young (R-IN) in May, 2022, this bill would allow for the establishment of an emergency savings account as an optional feature that can be added to an employer's retirement plan. The bill would permit workers to access funds saved in the account without tax penalty. 

Read more: Ascensus exec: 529 and ABLE plans can shore up families' financial futures

Enhancing Emergency and Retirement Savings Act
Introduced as S. 1870 by Senators James Lankford (R-OK) and Michael Bennett (D-CO), and as H.R. 7146 by Representatives Brad Wenstrup (R-OH) and Tom Suozzi (D-NY), the bill would permit penalty-free withdrawals, up to $1,000, from tax-exempt retirement plans for emergency personal expenses, limited to one distribution in a calendar year. The bill allows workers to repay the money back into the plan over three years.

Two large, more comprehensive pieces of legislation contain emergency savings and other retirement security policies supported by ERIC and our member companies. They include the Enhancing American Retirement Now (EARN) Act and Retirement Improvement and Savings Enhancement to Supplement Healthy Investments for the Nest Egg (RISE & SHINE) Act of 2022, 

The good news for workers is that these proposals all recognize and address the problem of a lack of savings among too many Americans. They also encourage retirement savings by allowing for easier, penalty-free access to funds in case of an emergency. But perhaps most importantly, they enjoy bipartisan support in Congress, which can help push these policies over the finish line this year.

Read more: Can retirement savers afford to save more under the new 401(k) caps?

If you have not already done so, have a conversation with your employer clients and their retirement plan participants about financial wellness and the interaction between retirement plans and emergency savings, knowing that congressional support may be on the way. In the meantime, you and your employer clients should voice your support for complementary approaches to retirement and emergency savings like those included in bipartisan legislation pending in Congress. Good policy changes can help make financial and retirement security a reality for hardworking employees and their families.