Employers Add Emergency Savings Accounts to Benefits
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Here's your money briefing for Friday, August 27th. I'm J.R. Whalen for The Wall Street Journal. Many Americans have money put away in 401k retirement accounts or IRAs offered by their employer. But in most cases, that money is locked up until a person stops working. A more pressing issue is that many don't have that much put away now in case they need it unexpectedly.
Researchers who've done work in this area say that there's ample evidence that people across the income spectrum don't save sufficiently for emergency expenses.
Coming up, we'll talk with WSJ retirement reporter Anne Tergesen about how more companies are offering emergency savings accounts for their workers. That's after the break.
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Americans have lots of ways to save money, online savings accounts, maybe a 401k or an IRA, but that doesn't mean they take advantage of all of them.
What problem are employers trying to solve by offering emergency savings accounts?
In particular, many people lack a financial cushion to fall back on in case of emergency. Now more employers are stepping in, offering emergency savings accounts where a worker can put money away on a regular basis, sometimes with generous incentives to do so. Our retirement reporter, Ann Turgason, has been looking into this growing trend, and she's here with details. Ann, it's great to have you with us.
Thanks for having me.
You know, Anne, many companies already offer savings tools like 401ks and health savings accounts. Are these emergency savings accounts fairly new?
Yes, in general, they are. I mean, I'm sure there are individual companies that have had, you know, pre-existing savings account benefits for employees for years, but it's really a trend that's picking up steam in recent years.
So who would benefit the most from these accounts?
I think, you know, in general, employers are most concerned about hourly workers, people who are paid, you know, relatively low wages. But I think, you know, researchers who've done work in this area say that there's ample evidence that people across the income spectrum don't save sufficiently for emergency expenses and then sometimes are forced to do things that, you know, are counterproductive for long-term financial health, like rating their retirement accounts.
And how do these savings accounts typically work?
There are sort of two general categories of the way they work. One is that sometimes employers offer sort of an emergency savings bucket within the 401k program. And that can be a little bit complicated, but basically it involves people making after-tax contributions up to a set amount, like say $1,000 into their retirement account. And then anything above and beyond that will go into the long-term retirement account, you know, the target date funds that we're all used to. And the second way that companies are doing this, and I think this is increasingly popular, is by using payroll deductions to help employees save in sort of bank or brokerage accounts that are either set up through the employer or the employee sets up on their own and links into an employer sponsored program.
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