3 Reasons to Offer Your Employees an Emergency Fund

Nearly two-thirds of Americans have either no emergency savings or less than one month of expenses saved for emergencies, according to a report from the Consumer Financial Protection Bureau. Most employers recognize the value of helping their employees save for retirement—that’s why they offer 401(k)s and matching contributions. But what about helping employees prepare for their most basic financial needs such as affording unexpected expenses? Some employers are doing just that by offering emergency savings accounts to their employees.

Reasons to Offer an Emergency Savings Account

Attract New Talent

Employers know that the labor market is competitive right now. Offering an emergency fund could help an employer stand out: 27% of employees said that they would consider switching jobs if the new employer offered an emergency fund as a benefit.

Protect Retirement Savings

During the pandemic, nearly one-third of Americans tapped into their retirement accounts, mostly to cover basic living expenses. The unfortunate reality is that if employees don’t have emergency savings, they may tap into their retirement accounts, either through a direct withdrawal or a loan. Either way, this sets them back with their retirement and in the case of withdrawals, reduces the value of their contributions due to taxes and the 10% early withdrawal penalty.

Reduce Financial Stress

A lack of emergency savings has a massive impact on employees’ lives: 68% of Americans with no emergency savings say that finances often or always control their lives. People without emergency funds are much more likely to have delinquent debt and they’re more likely to have maxed out their credit limits or not have credit cards at all. All of this leads to stress that can affect employees’ job performance. Having the funds to cover an unexpected expense is empowering and that success can ripple into other areas of employees’ finances.

Options for employer-sponsored emergency funds

If you’re convinced of the benefits, here is how to get started: first, check with your 401(k) provider. More of these 401(k) providers are offering “in-plan” options for after-tax cash savings that employees could withdraw in an emergency. There are also third-party services, like SecureSave, that exist solely for this purpose.

Tips for the most effective emergency fund

To have the biggest impact, employers should auto-enroll their employees (with the option to opt-out, of course). Using payroll deductions to fund these accounts streamlines the process for employees and offering a match incentivizes them to use it. And finally, if there are administrative expenses associated with the accounts, don’t pass those on to the employees.

If your employees need help figuring out how much they can contribute to their emergency fund (whether that’s through your or not), The Financial Gym can help! Contact us at enterprise@fingyms.com or submit an inquiry.