Question: One item that has moved to the top of our wish list is providing some kind of emergency savings program for our employees. Is there a way to add one into our 401(k) plan, or will it have to be a separate program?
Answer: The pandemic certainly pointed out a need for people to accumulate emergency savings, and many employers and service providers are asking the same question. In fact, in a recent report on the subject of emergency savings, it was found that 37% of Americans can’t come up with $400 from savings in an emergency. Among those whose household incomes are less than $60,000, the figure was 58%, and it’s even higher for women and Black households making less than $60,000. The report is based on interviews with nine of the largest U.S. recordkeepers and seven employers, inquiring about ways to facilitate emergency savings products. Eight of the recordkeepers said they either offer or plan to offer such a program, either in plan or out. There was no clear preference by plan sponsors for either in-plan or out-of-plan solutions, and recordkeepers said they would base their offerings on participant and plan sponsor demand. Plan sponsors may not wait around for the complexities to be worked out; four of the seven interviewed for this report said they plan to offer emergency savings soon, either through a recordkeeper or a credit union. There are, of course, pros and cons to consider when comparing in-plan and out-of-plan emergency savings, and the report discusses some of them. Click here to read more.