Emergency Savings Tools Linked to Higher Plan Participation
Emergency savings benefits, along with workplace features dedicated to financial and retirement wellbeing, are linked to stronger plan participation.
T. Rowe Price’s benchmarking report, “Reference Point,” finds that plans offering emergency expense withdrawals have a participation rate of 76%, compared to 67% in plans without the features. This is as the findings show that 69% of workers have less than six months’ worth of emergency savings, and 47% say they can’t cover a $1,000 expense.
Participants who took a withdrawal from their retirement account had an average savings rate of 5.8% and had an average of $38,000 in their account, compared to 8.6% and $146,000 for participants who did not withdraw from their savings.
While the findings show that employees are likelier to participate if emergency savings benefits are available, only 18% of plans offer emergency expense withdrawals and less than 1% of participants have access to the features, T. Rowe Price reports.
The research further links the availability of workplace benefits to positive participant behaviors. According to the findings, participants who engage with financial advice, education, and other tools provided by their employer save 29% higher for retirement compared to non-users and have twice the average account balance.
As participants grapple with higher costs and an uncertain economic landscape, T. Rowe Price experts observe how many are turning to professionals for help.
“This year’s data shines a light on how personalized guidance and advice are pivotal for retirement readiness,” said Francisco Negrón, head of Retirement Plan Services at T. Rowe Price. “As the economic environment continues to challenge retirement savers, equipping them with financial tools and support is more important than ever.”
The research also noted changes in behaviors for participants who are now closer to retirement age. Participants in their 50s and 60s were likelier to increase their savings rates and make active investment changes instead of settling in the plan default. Those in this age group increased their savings rates by an average of 1.4 percentage points annually—surpassing usual automatic increase defaults.
Legislation from SECURE 2.0 have also propelled plan sponsors to offer additional benefits. T. Rowe Price found that 78% of plans have adopted at least one optional SECURE 2.0 provision since its enactment, with higher catch-up limits, self-certified hardships, and small balance automatic distributions among the most in demand.
Roth contributions have also seen increases, with plans who offer the benefit achieving participation rates 30% higher, balances at 29% more, and savings rates at 6% higher than plans without a Roth match.
The research also proved that some tools, like automatic features, remain a tried-and-true benefit. In plans with automatic enrollment, 99% of participants have either increased or maintained their default savings rate.
Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with nearly a decade of experience and a passion for telling stories and reporting news. She is originally from Queens, New York, but now resides in Denver, Colorado.