Help Workers Save for Rainy Days, Not Just Golden Years

Article Originally Published by Workforce Magazine

By: Dan Murray

There is a savings crisis in America. Eight out of 10 workers are living paycheck to paycheck, and though many employers have started to prioritize financial wellness in recent years, they are doing little to prepare employees for financial emergencies that could end up affecting their performance in the workplace.

While it’s true that a lot of companies offer 401(k)s to help employees save for retirement, they aren’t a feasible option for many U.S. workers, regardless of employer contributions. The Federal Reserve Board’s 2018 “Report on the Economic Well-Being of U.S. Households” shows that 40 percent of people can’t even afford a $400 emergency, much less afford to set money aside for retirement.

401(k)s have their place in financial wellness, but that place is not savings for events prior to retirement. There are substantial fees associated with withdrawing funds before retirement.

These fees impact a lot of people: 44 percent of Americans report having to tap into their retirement before they hit age 59 and a half for things like grad school, debt reduction and unexpected hospital visits.

There is a 10 percent penalty for early withdrawals. On top of that, employees must also pay income tax on the money they withdraw, making these accounts even less useful for unexpected expenses prior to retirement.

Financial Worry Hurts the Bottom Line

But early withdrawal fees are just one symptom of the larger problem of ongoing financial stress. Last year, nearly 60 percent of people surveyed said they were anxious about their future financial state. And even more concerning, more than 30 percent reported being worried about how they’ll make ends meet in the present.

This financial stress leads to big problems in the workplace. For example in 2017, financial worry caused employees to miss an average of 3.4 work days, and nearly a third of financially stressed employees say their money concerns carry over into their job, affecting their productivity and focus.

SafetyNet asked thousands of workers what they would like from their companies, and most noted they wanted help saving money, especially for unexpected emergencies. But few employers are offering help when it comes to rainy day savings.

Employers Can Help by Offering Short-term Savings Programs

The good news is that improving employees’ financial security is solvable.

Some companies, like Aetna, have started using incentive-based financial programs to educate employees on basic money management. Still, only 17 percent of large companies offer these types of programs and employees want financial tools in addition to education.

Prudential Financial is throwing their hat in the ring by helping employees set up an after-tax savings option within their 401(k)s. This model enables employees to gather after-tax contributions from their paycheck and have a lower withdrawal fee than the pre-tax contributions do, making these funds easier to use as emergency savings if needed.

One option becoming popular for employers is a short-term savings program, which holds funds that people can access at any time.

Different from traditional savings accounts, these programs (sometimes called “rainy day funds”) are typically sponsored by employers. They work by stowing funds in dedicated savings accounts. A few varieties already exist.

CookieJar, for example, is an employer-sponsored savings account that rounds up spare change from employees’ debit card purchases and gives companies the option to match those contributions. This type of program is low-cost — far below those of a 401(k) for the employer, and free to the employee.

And with Congress attempting to make it easier for employers to set up these types of programs, you can expect to see more in the future.

Given the amount of time and energy currently lost to financial stress, these programs could have a major impact on the well-being — and the bottom line — of your company.

Dan Murray is the chief operating and information officer at SafetyNet, a company that creates customer-focused financial and insurance solutions.


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