An employee that can’t cover an unexpected bill probably isn’t contributing to a 401k, right? And until they are able to establish an emergency fund, contributing to a 401k probably isn’t in the cards.
Research reveals most employees—as in about 75%—would likely struggle with unexpected expenses such as car repairs or medical bills, which can have a bottom-line impact on employers: Financially stressed workers may be significantly less productive.
As such, it’s little wonder that employers are increasingly concerned about workers’ emergency savings situation. Reported approaches to encouraging employees to save for emergencies range from providing guidance and tools to offering incentives, creating “rainy day” accounts, and matching employee emergency savings contributions.
To better understand employer goals, motivations, and challenges when it comes to helping employees with their emergency savings, the Employee Benefit Research Institute (EBRI) examined responses from “emergency fund-focused employers” or those employers in its 2019 Employer Approaches to Financial Wellbeing Solutions survey that said they offer or plan to offer an emergency fund or employee hardship assistance as a financial wellness initiative.
The EBRI Issue Brief, “Emergency-Fund-Focused Employers: Goals, Motivations and Challenges,” found 43.6% of employers expressing at least some interest in offering financial wellness programs said they offer (28.2%) or intend to offer (15.3%) an emergency fund/employee hardship assistance as a financial wellness initiative.
Lack of employee emergency funds concerns employers
According to the Federal Reserve, half of American families report having an emergency fund, and only 20% of American families had access to liquid savings of more than three months of their family income in the case of an emergency. The ability to cover short-term financial needs can have long-term financial consequences, and the establishment of an emergency savings fund to protect against financial emergencies is considered to be critical to overall financial health.
Emergency fund-focused employers are more likely to have taken steps to understand their employees’ financial wellness needs compared with other employers. These same corporations rate company concern about employee financial wellbeing as an eight on a 10-point scale.
Concerned companies favor education, debt assistance
Emergency fund-focused employers were also more likely than all employer respondents to favor education-based financial wellbeing or debt assistance benefits to employees.
These might include print or online education and resources for goal setting and saving. Just over 43% of emergency fund-focused employers cited this approach to financial wellbeing or debt assistance benefits for employees, compared with 35.5% of all employer respondents. In contrast, emergency fund-focused employers were less likely to favor product-based benefits, which could include insurance, retirement plans, or employee assistance programs, to fill this role.
“Programs that reflect employers’ interests in helping workers with emergency savings are still early in their development,” said Lori Lucas, CFA, President & CEO, EBRI. “While there’s clearly a lot of interest being expressed, many employers report that they are only beginning to explore some of the newer available financial wellness initiatives in this area, such as ‘rainy day’ funds and payroll deduction accounts.”
Measuring success can be complex
Measuring the impact of these initiatives can be challenging. “There are sometimes inconsistencies between the reasons employers give for offering financial wellness initiatives and the means of measuring their results,” Lucas said.
For instance, 44.4% of emergency fund-focused employers cited improved overall worker satisfaction as a reason for offering financial wellness initiatives, but less than 30% cited that improved overall worker satisfaction would be used a measure of the success of the initiative. Likewise, increased employee productivity was cited as a program justification by 29.6% of employers, but employee productivity was used as a measure of success just 20.4% of the time.
There has also been attention given to other actions employers can take to better the financial position of employees. “Some have suggested that employers should concentrate on improving job quality and pay and not just on ways to make it easier for workers to save. It will be important to research the extent to which emergency savings help improves overall financial wellbeing vs. shifting the focus from retirement preparedness to current financial stability,” Lucas said.
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
