Emergency savings accounts can help achieve benefits equity

Having access to funds for an emergency is more critical than ever for workers' financial well-being, but they often find it difficult to build these savings. The issue has become a growing concern as more employers ponder ways to make their employee benefits package more responsive to those who are struggling to make ends meet. And there's no time like the present for producers to have strategic discussions with their employer clients about helping close this troublesome savings gap. 

A recent national survey conducted by the Bipartisan Policy Center found that a broad swath of workers live paycheck to paycheck, with almost one-third of respondents saying they could cover roughly a month or less of expenses if they lost their income. We see low- and moderate-income (LMI) households, including those headed by people of color and women, represent a disproportionate share of those with very low amounts of emergency savings  — or none at all. 

Employers have an opportunity to address this pressing challenge to improve worker financial well-being by offering emergency savings accounts as a workplace benefit. If they are designed well, person-centered, and account for the needs of LMI workers, then these accounts can make saving easier while creating a more resilient workforce. 

Read more: It's time for new financial security benefits that meet low-income workers' needs

As employers consider the core benefits they provide to meet their workforce's needs, hire in a competitive market and retain quality workers, emergency savings is a key benefit that helps employees navigate immediate financial challenges while creating on-ramps to long-term financial stability including building their retirement savings. 

We know that well-designed workplace programs aimed at improving financial wellness can work, and there is a clear link between financially secure employees and business outcomes. Companies are more likely to retain employees who are financially secure, and those same employees are often more productive. Employees who worry about their finances are more likely to miss deadlines and produce lower quality work.

Employees look to their employers to provide benefits for financial stability. Research shows that across the income spectrum, workers, including those in the LMI category, find value from savings tools in their employer-provided benefit plans. A recent survey also showed that interest in these emergency savings accounts is especially high among young (69%), Black (74%) and Hispanic (68%) workers. They not only want these solutions from employers, but with the right support systems in place, many workers do save as long as tools are designed with their needs in mind. Offering accounts through payroll deduction can make the process of saving as seamless as possible. In addition, accounts should include: 

• No fees or minimum balance requirements and liquidity, which is defined as immediate access to funds
• Incentives for participation (even small amounts can have a big impact) 
• Frequent employee communication on the full range of financial benefits

While these accounts are an important part of financial wellness, emergency savings should be part of a broader strategy on financial wellness. It can be complementary to many types of saving and activities that create an equitable set of benefits that could make a meaningful difference for all workers.

We see glaring retirement savings gaps across a number of demographic groups and don't stand a chance of closing racial, gender, generational or geographic wealth gaps without addressing gaps in retirement savings. Emergency savings may have an important role to play in closing this gap in particular. Many in the retirement industry agree. 

Read more: Use financial benefits as a strategy to boost business and create stress-free workers

Over the past several years, recordkeepers have made significant progress on developing and implementing emergency savings solutions for American workers in a way that supports retirement savings. The takeaways are clear: adequate emergency savings can protect retirement savings, functioning as a buffer against early withdrawals. And for those who are currently not saving for retirement, emergency savings also may serve as an important building block toward increased contributions to retirement, especially for LMI households.

Employers have several options in the market for delivering these programs, including accounts provided through a bank or payroll card ("out-of-plan") and accounts within the structure of a retirement savings plan ("in-plan"). 

Addressing financial wellness and advancing equity will take many steps across multiple sectors, but employers can start by offering programs that workers want and need to reach the critical step of achieving short-term financial security. 

With the help of a trusted benefits adviser, employers that offer emergency savings accounts have a tremendous opportunity to move the needle on benefits equity in a tangible way, promote financial wellbeing and provide benefits that may help retain employees.