Some 40% of Americans can’t afford a $400 unexpected bill, according to a widely-circulated statistic from the Federal Reserve. This lack of emergency savings is a constant source of frustration for plan advisors and sponsors, since participants who can’t afford such an amount would struggle to save for retirement. Those who do save would also be more likely to withdraw funds early to pay the expense.
It’s an issue, one that MassMutual and Millennium Trust Company have teamed up to tackle.
MassMutual is offering an emergency savings solution to every worker who participates in one of the insurer’s 401ks or other defined contribution plans.
It’s being made available to 2.6 million-plus retirement plan savers for which MassMutual is their plan’s administrator or recordkeeper. The emergency savings solution available automatically through MassMutual’s MapMyFinances financial wellness tool, “which helps workers prioritize their personal finances and employee benefits based on their family needs and budget.”
The accounts require a minimum deposit of $25 per month, are FDIC-insured, taxable and through Millennium Trust’s cash account sweep program earn a competitive market rate of return. The maximum amount workers can accumulate in their emergency account is $250,000.
“Americans need to save for retirement, but also for unexpected expenses that could potentially derail their retirement strategy,” Erik Beck, Chief Growth Officer at Millennium Trust, said in a statement. “That’s why we created this platform—to provide individuals with an easy and automatic way to save for emergencies. This will help protect Americans’ retirement nest egg should emergencies arise, and will help them achieve greater financial wellness.”
By helping workers better manage financial emergencies and other short-term financial needs, MassMutual aims to enable them to achieve greater financial security. Once workers have their shorter-term financial needs under control, Lapiana said, they are better able to focus on longer-term financial goals such as retirement.
“If you are worried about how to pay a hospital emergency room bill, an unexpected car repair or other sudden financial need, it’s hard to picture living securely in retirement,” Paul Lapiana, Head of Product for MassMutual, added. “Relieving workers of their short-term financial worries over time enables them to focus and ultimately realize their longer-term financial goals.”
A productivity problem
Employers are also recognizing the need to address workers’ financial wellness issues, according to Lapiana. Financial stress can sometimes intrude upon the workday and productivity, he said.
The 2019 MassMutual Workplace Financial Wellness Study finds that 79% of employers say their workers are struggling financially.
Although employer estimates vary about how many employees are plagued with financial problems, half of employers estimate that at least 25% or more of their workers struggle financially and 15% of employers say at least half of their workers are plagued by financial woes, the study finds.
Proof points for employees’ financial struggles include managers’ conversations with employees, employees’ lack of participation in retirement plans, working second jobs, taking loans from retirement plans, asking for paycheck advances and other indicators.
The most prevalent employee financial problems cited by employers include credit card or other consumer debt, day-to-day expenses for housing and childcare, the inability to save and prepare for retirement, a lack of emergency savings, and high medical costs, according to the study.
Money worries accompany many Americans to work. Four in 10 middle-income workers—those with household incomes of between $35,000 and $150,000—say they worry about money at least once a week while at work, according to the 2017 MassMutual Middle America Financial Security Study.
Half of Americans who are less affluent – those earning less than $45,000 – reported bringing their financial concerns to work at least once a week and 20 percent said daily.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
