In December, Congress passed the SECURE 2.0 Act of 2022, which included The Emergency Savings Act. These emergency savings provisions open the door for employers to consider offering new emergency savings solutions to workforces starting in January 2024.

Yet, critical questions remain for HR and benefits leaders, including how to approach the offerings for in-plan and out-of-plan solutions, as well as ensuring inclusivity for employees earning low and moderate incomes (LMI).

With the passage of this Act, Congress recognized that emergency savings are critical to improving workers’ financial security. The Act contains two non-mandated options for offering emergency savings through workplace retirement plan offerings:

1. Allowing companies to automatically enroll employees into an emergency savings program linked with their retirement plan that would allow them to save up to $2,500 after tax; or
2. Permitting workers to make penalty-free early withdrawals of up to $1,000.

In our latest webinar on May 17, How SECURE 2.0 Could Impact Workplace Emergency Savings and Inclusive Financial Wellness, a panel of executives from three different sectors convened: Commonwealth, a nonprofit; AutoNation, an employer; and Voya Financial, a recordkeeper, discussed key questions. The webinar was hosted by Commonwealth and Employee Business News,with support from BlackRock’s Emergency Savings Initiative(opens in a new tab) (ESI).

The panelists included Nick Maynard, Senior Vice President, Commonwealth; Tom Armstrong, Vice President of Customer Analytics and Insight, Voya Financial, and Head of Voya’s Behavioral Finance Institute for Innovation; and Nancy Weis, Senior Director of Retirement, Benefits Financial Reporting, and Relocation for AutoNation. Moderated by Lynn Gresham, former Editor-in-Chief, Employee Benefit News, the conversation centered around the critical role employers and recordkeepers play in operationalizing the emergency savings provisions in SECURE 2.0.

Here are three key takeaways from the webinar:

1. Use a data-driven approach to structure plan solutions

Companies need to use a data-driven approach to structure plan solutions and understand the needs of all of their workers.

In order to maximize participation in an emergency savings program, companies should consider what’s impacting employee financial stress, productivity, engagement, and retention. In addition to that, collecting data about current hardship loan amounts and use cases may help determine the right emergency savings solution. Employers will also need to understand how emergency savings will impact their workers’ retirement plan engagement and participation. Data from BlackRock’s Emergency Savings Initiative and others has shown emergency savings positively impact retirement savings.

With a solid understanding of employees’ needs, employers can consider the landscape of tools offered from their retirement recordkeeper, payroll provider, and other benefits providers to create a suite of emergency savings solutions that best serve their diverse employee population.

For workers earning LMI, it’s especially critical to offer solutions through payroll or other benefits that meet their needs for friction-free liquidity and access. “When thinking about hourly workers or workers whose families live on low to moderate incomes, we want to make sure they’re incorporated into a financial wellness strategy and are making a positive step forward,” Maynard said.

Black, Latinx, and women-led households disproportionately experience financial insecurity due in large part to longstanding, systemic racism and gender discrimination. Seven in 10 Black and Latinx employees are more likely to have inadequate emergency savings and resort to taking hardship loans from their retirement plans as compared to less than half of white and Asian employees, according to recent Voya research(opens in a new tab).

“Research shows that plans offering auto-enrollment strategies have significantly higher conversion rates amongst these populations,” Armstrong said.

Continuing to engage and inform employees living on LMI about emergency savings plans, while closely monitoring plan participation amongst these groups, is key.

Weis shared AutoNation’s experience setting up an emergency saving program with the help of Commonwealth. She said one of their starting points was a growing trend that employees are looking to their employers to help them save.

As AutoNation is a diverse workforce, they knew that a one-size solution wouldn’t work for all employees. This meant they’d need to offer a mix of in-plan and out-of-plan offerings to meet the varying needs of its employees. AutoNation chose to offer a multi-solution emergency savings benefit. Their three-pronged approach leveraged AutoNation’s payroll systems including the split deposit functionality; ADP’s Wisely card¹ and myWisely app²; and a third option within the 401(k) plan through Voya.

“AutoNation’s goal is to help everyone—especially those who need it most—so having both in-plan and out-of-plan options available has helped us meet those diverse needs,” said Weis.

A recording of the webinar is available on Commonwealth’s website. To learn more about our research, read our recently published case study, How ADP’s Solution Facilitated $1.5 Billion in Emergency Savings.

About BlackRock’s Emergency Savings Initiative

BlackRock announced a $50 million philanthropic commitment to help millions of people living on low to moderate incomes gain access to and increase usage of proven savings strategies and tools — ultimately helping them establish an important safety net. The size and scale of the savings problem requires the knowledge and expertise of established industry experts that are recognized leaders in savings research and interventions on an individual and corporate level. Led by its Social Impact team, BlackRock is partnering with innovative industry experts Common Cents Lab, Commonwealth, and the Financial Health Network to give the initiative a comprehensive and multilayered approach to address the savings crisis. Learn more at www.savingsproject.org

¹The Wisely Pay Visa® is issued by Fifth Third Bank, N.A., Member FDIC or Pathward, N.A., Member FDIC, pursuant to a license from Visa U.S.A. Inc. The Wisely Pay Mastercard® is issued by Fifth Third Bank, N.A., Member FDIC or Pathward, N.A., Member FDIC, pursuant to license by Mastercard International Incorporated. The Wisely Direct Mastercard is issued by Fifth Third Bank, N.A., Member FDIC. ADP is a registered ISO of Fifth Third Bank, N.A., or Pathward, N.A. The Wisely Pay Visa card can be used everywhere Visa debit cards are accepted. Visa and the Visa logo are registered trademarks of Visa International Service Association. The Wisely Pay Mastercard and Wisely Direct Mastercard can be used where debit Mastercard is accepted. Mastercard and the circles design are registered trademarks of Mastercard International Incorporated.

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