Workplace Emergency Savings: The Must-Have Benefit for 2023

By: | February 2, 2023

Les Williams, CRM, is Cofounder and Chief Revenue Officer of Risk Cooperative. He holds a B.S. in mechanical engineering from the University of Virginia and an MBA from Harvard Business School. Prior to joining Risk Cooperative, Les served in various institutional sales positions at SoHookd, JLL, and IBM.

The economic outlook for 2023 began with ominous news for the American worker.

While the tech sector has been particularly impacted (Meta, Twitter, Amazon, Google and Microsoft being the most notable), other sectors are also beginning to shed jobs; Goldman Sachs, BlackRock, Bed Bath & Beyond, Carvana and McDonald’s are other household names in various sectors making cuts to their labor force.

In the current inflationary environment and weakening labor market, the purse strings of Americans continue to tighten, with hopes for a drop in prices as the year progresses.

The fact that half of Americans do not have access to retirement plans at work and 40% are unable to handle a $400 emergency prompts the question: What can be done to support the resiliency of American workers given their waning household savings and the state of the economy?

Supporting Employees via Emergency Savings

“While retirement is important, we know lots of people aren’t focused on how to pay for things 20 or 30 years from now; they’re focused on paying for rising costs and other emergencies tomorrow or next week,” said Sid Pailla, CEO of Sunny Day Fund, a workplace emergency savings platform.

Emergency savings is a relatively new employee benefits concept wherein a company works with an emergency savings platform that offers workers a separate savings account connected directly to payroll. In some of the more successful workplace savings models, the bank is not a custodian such that the employee owns the account outright, even if they were to leave their employer.

The employee can allocate any amount of each paycheck toward their workplace emergency account, and on a quarterly basis, the employer contributes a cash reward (via a 20% incremental interest rate, for example) to each employee’s emergency savings account.

The more an employee saves in their account, the more money in interest they earn from their employer’s contribution.

Research has shown that over 20% of people dipped into their retirement savings in 2021, driven in large part by their inability to cover an unexpected expense. Recent data from Vanguard and others suggests this number is only rising.

Having an emergency savings program reduces 401(k) leakage and encourages employee participation in 401(k) programs because employees feel more secure about investing in their future, knowing their immediate tomorrow is secure. Higher income earners are not immune from the need to save; in fact, interactive digital platform PYMNTS found that 36% of consumers earning $250,000 a year are living paycheck to paycheck.

High Yield Savings, Simpler and Easier?

Since emergency savings are so important to the financial wellbeing of Americans, can’t employers simply tell their employees to open a high-yield savings account and “save for a rainy day” on their own?

While this guidance sounds easy, it is harder to implement due to a variety of factors.

First, there is a large contingent of Americans who would not qualify for high-yield savings accounts because of the underwriting standards, such as maintaining a minimum credit score, required minimums, heavy fees or technological access. This adversely impacts certain demographics, mainly women and BIPOC populations, who tend to have lower credit scores and incomes.

Beyond these barriers, many employees do not have the financial wherewithal to establish their own regular savings plan. This is akin to someone showing up to a gym for the first time in their life and attempting to start lifting weights; it is much easier to have a trainer show them the ropes or have a training plan written in advance.

Finally, having an emergency savings plan allows the employer to contribute toward their employees’ savings account, like employer matching in a 401(k) program. By transforming the act of saving for emergencies from a behavior driven by fear into one driven by economic incentives, employees can more sustainably build their liquid wealth.

Beyond the importance of establishing an employer-rewarded emergency savings account, a good workplace emergency savings platform can also allow employees to track savings goals like saving for a vacation, saving for a new car or even saving for a new baby. This is an important concept, because it teaches employees how to allocate and budget their savings — in essence, it teaches them why and how to fish, instead of simply giving them a fish.

New Legislation Brings New Demand for Emergency Savings

The SECURE Act 2.0 recently passed as part of a $1.7 trillion omnibus budget bill to expand access to workplace savings plans at companies large and small, helping them to create offerings for their workers.

This bill will be top of mind for HR managers across the U.S., and many will be inquiring about how emergency savings platforms can play a role at their respective organizations.

Employee benefit risk managers would be wise to recommend workplace emergency savings as a new benefit for their stakeholders. Emergency savings mitigate the risk of employees experiencing financial hardships, which can lead to higher employee retention rates, lower instances of mental distress and a happier workforce.

Given the threat of a stormy economy on the horizon, saving for a rainy day has never been more important. &


Editor’s note: Les Williams is an investor in and board member of the Sunny Day Fund.