Employers may want to consider becoming the umbrella to their workforce’s rainy day by offering an automatic emergency savings account.
Experts agree people can never have too much in savings, but as a starting point, Wells Fargo recommends that employees put away three to six months of living expenses. But lots of people aren’t heeding this advice: Last year, 5.5 million Americans reported they had no emergency savings at all, according to a survey from financial wellness company Bankrate.
“Having an emergency savings is an essential part of financial wellness,” says Terry Dunne, managing director of retirement services at Millennium Trust, a Chicago-based financial institution. “And as an employer, you don’t want [employees] digging into their 401(k) for emergencies.”
Employee Benefit News spoke with Dunne about how employers can help their workforce start and nurture an emergency savings account.
Why should employers care if their workers have emergency savings?
Lots of reasons, [but first] I’d say that financial wellness is the right thing to do for the individual and the company. Focusing on
Also, if employees don’t have emergency savings they’re probably going to dip into their 401(k) and other retirement accounts. You don’t want that.
So employers should be worried employees won’t retire on time?
Absolutely. The longer it takes an employee to retire, the more companies spend on their medical insurance. It’s already hard for folks to retire on time; if they’re withdrawing from their retirement savings early, and incurring tax penalties as a result, it’s only going to take longer. Better to have them set up with an emergency savings can use when something breaks, or someone loses their job.
Explain what an automatic emergency savings benefit is. How does it work?
It’s basically the same as health and other benefits deducted from your paycheck. The employee chooses how much they want withheld each pay period, and that gets deducted from each check and placed into a separate account. People usually have savings accounts at their own bank or credit union, but they don’t always have the discipline to regularly contribute. This way, it’s done automatically. The balance racks up faster than you think. If employees accumulate, let’s say $100 or $200 per paycheck, the money can grow to $2,500 or more each year. Maybe it takes three or four years to have the suggested amount you need in emergency savings, but it’s a good start.
What’s the best way for employers to provide this benefit?
Our suggestion is after-tax accounts. It’s much easier for people to understand, there’s no withdrawal penalties and it accumulates interest. Plus employees will have easy access to the funds if they need them. It’s as simple as if it were their own checking account.
Employers should partner with a financial institution that has experience growing smaller accounts; it’ll make a big difference for your employees’ savings.
