More Companies Offer Emergency Savings Option to Workers

A growing number of American workers are getting access to a new job benefit: help with saving for unexpected expenses.

The financial stress on workers brought about by both the pandemic and rising inflation, as well as employers’ need to attract employees in a competitive job market, is making rainy-day savings options a hot job perk.

Starbucks is the latest employer to announce that it is offering an emergency savings option for workers. And companies including ADP, the big payroll processor, and start-ups like SecureSave, which the personal finance celebrity Suze Orman co-founded, are offering employers access to easy-to-use tools to help workers save.

“You’re seeing increased interest by employers compared with four years ago,” said Nick Maynard, a senior vice president at Commonwealth, a nonprofit that promotes financial security for low- and moderate-income Americans.

Experts have come to considersaving for emergencies different from saving for long-term goals, like a down payment on a house or retirement, because rainy-day funds may be used and replenished repeatedly. Workers need an easily accessible cushion to navigate near-term financial setbacks, Mr. Maynard said. Those include not just large shocks like a broken furnace or a job loss but also smaller shortfalls, like a car repair or even more cash than was anticipated at the gas pump.

Yet nearly a quarter of consumers have no savings set aside for emergencies, according to the Consumer Financial Protection Bureau. That can drag people into debt through credit card bills or riskier alternative sources like payday loans. Or it can push consumers to take early withdrawals from retirement accounts, risking their long-term financial security.

Workers with emergency savings were less likely to have taken early retirement withdrawals during the pandemic, the bureau found. And employers and benefit companies see emergency savings tools as a way to attract and retain workers.

“We are in an employee market right now,” said Will Fuller, the chief executive of Transamerica, which recently added SecureSave and another emergency savings option, from Millennium Trust, to the benefits options available to its employer clients.

SecureSave, whose website features a video from Ms. Orman, automatically transfers after-tax funds from workers’ paychecks to savings accounts at a partner bank. Workers can track balances and transfer funds with a mobile app. The average employee saves $38 per paycheck; employers typically match $4 per paycheck, and many offer sign-up bonuses. Devin Miller, SecureSave’s chief executive and co-founder, said the company charges employers from $1 to $3 per participant per month.

Ms. Orman is the host of the “Women & Money” podcast. She gained wide popularity as the host of a television show in which she told fans that if she “approved” or “denied” their spending proposals. A 2012 foray into financial products, a prepaid debit card, folded after just two years. Yet her appeal endures.

“Anything Suze Orman is endorsing has got to be good, right?” said Steve M. Robinson-Burmester, the director of finance at the California State Council of SEIU, the lobbying and political arm of the Service Employees International Union in the state. More than half of the council’s 33 employees participate, he said, and can earn a 10 percent employer match if they meet contribution thresholds.

Ms. Orman, whose title is chief strategy officer, said in an interview that she had worked with her co-founders to make SecureSave easy to use and understandable for “ordinary” people. “I care about people, and I protect them,” she said.

SecureSave has found that employees typically make their first withdrawal after four months of saving. The average claim is for about $200, and the most common category is car/transportation — but the funds can be used for any reason.

According to research from Commonwealth, emergency funds should be easily available. If workers worry that they won’t be able to get cash when they need it, they won’t participate.

Commonwealth recently conducted a study with ADP to enhance the emergency savings features of the company’s Wisely payment card and app, which some employers use as an alternative to paychecks. Adding features like multiple “envelopes” for workers to use for savings, among other steps, helped to nearly triple employees’ net savings, Commonwealth reported.

Here are some questions and answers about emergency savings:

How much cash should I set aside for emergencies?

For near-term shortfalls, even $1,000 can help prevent families from drawing on retirement savings in a pinch, according to research from the Aspen Institute and others. Other research suggests that smaller cushions, of between $250 and $700, can help families stave off a calamity like eviction.

If I tap my rainy-day fund, does that mean I am a financial failure?

No. The idea of emergency funds is that they are available to be used when needed, and then replenished — until they are needed again, according to Commonwealth.

Can employers automatically enroll workers in emergency savings plans?

Enrolling workers by default, as employers can do with retirement savings, is seen as key to increasing emergency savings participation.

“One thing we know is that auto enrollment is powerful,” said Shai Akabas, the director of the economic policy program at the Bipartisan Policy Center, a think tank in Washington. But employers need clearer signals from regulators, he said, that doing so for emergency savings is all right. “It’s at best ambiguous,” he said.

Part of the so-called Secure Act 2.0 legislation pending in Congress would give employers the option of automatically enrolling workers in emergency savings plans, with a default after-tax deduction of no more than 3 percent of their paycheck. Employees could change the amount they contribute, or opt out. It’s uncertain if the proposal will be included in the final legislation or if lawmakers will vote on it this year.

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