Introducing Linked Emergency Savings Accounts

These innovative accounts are specifically designed to help you save for those unexpected expenses that life throws our way. Starting in 2024, these savings accounts will be linked to your existing employer retirement plans, like 401(k) and 403(b) accounts, making saving even more accessible for you.

Here's what you need to know: As long as you're eligible to participate in your employer's retirement plan, you can contribute to these accounts. Good news! Most employees qualify, except for those considered "highly-compensated." So, if you meet the eligibility criteria, you're all set to get started!

But wait, there's more! 😲 Once your Emergency Savings Account balance reaches $2,500, contributions will pause. However, some employers may set lower limits if they choose to do so.

Now, let's talk about how distributions from these accounts will work. While the SECURE Act 2.0 doesn't specify the exact allocation of distributions between your contributions and interest earned, it's likely to be done proportionally. The IRS is expected to provide more clarity on this within the next 12 months, which is great news!

The SECURE Act 2.0 has your back during emergencies. It requires the assets in these accounts to be invested in principal-protected options like cash or interest-bearing assets. 🏦💰 Plus, you can contribute any amount you want to your Emergency Savings Account, and guess what? You can make at least one withdrawal per month without any fees! And the best part? These withdrawals will be tax- and penalty-free, just like Qualified Distributions from a designated Roth account. 🎉

So, why are these Emergency Savings Accounts linked to your employer retirement plans? It's all about getting the most out of your savings! 📈 Employers are required to treat contributions to these accounts like salary deferrals into your retirement plan. This means you can enjoy employer matching funds while prioritizing your emergency savings. It's a win-win!

To make life even easier, your employer can auto-enroll you in an Emergency Savings Account and contribute up to 3% of your compensation. Once you hit the maximum contribution limit, your employer may either pause your contributions or redirect them to a Roth account, like a Roth 401(k). Unfortunately, it doesn't seem possible to redirect the funds to pre-tax plan accounts by default.

6 things Employees Want from Emergency Savings

 1. Why are emergency savings accounts becoming a benefit?

Employees highly value financial well-being, and too many Americans struggle with unexpected expenses. Having three to six months' worth of savings is the ideal, but most have less. Employers are stepping up by offering payroll-deducted savings, the top requested benefit in 2023. It empowers employees to build crucial emergency savings, leading to higher retention rates, reduced stress, and a happier workforce.

2. Automate Saving for Emergencies Directly from the Paycheck

Building an emergency fund can feel overwhelming, but automating contributions into a secure, FDIC-insured savings account solves the problem. Mariana's experience with Sunny Day Fund exemplifies how effortless saving becomes with automatic payroll-deductions. It eases the financial strain and allows employees to grow their emergency fund while enjoying peace of mind.

 3. Overcome Inaction Bias while Creating a Savings Culture

Ty's story at Alleghany Warehouse Company demonstrates the power of an emergency savings program. His newfound financial flexibility empowers him to achieve goals and enjoy experiences that once felt unattainable. By offering a simplified, trustworthy experience, Sunny Day Fund helps employees overcome inaction bias and embrace saving for emergencies.

 4. Withdrawals from Emergency Savings Are a Good Thing!

Inflation and escalating expenses worry 90% of surveyed employees, impacting mental health and leading to bad financial events. Emergency savings help stem such events from the start, reducing reliance on high-interest debt. Employees like Mariana appreciate the safety net that Sunny Day Fund provides, ensuring they can tackle unexpected expenses.

 5. Deliver Service with Empathy and Dignity

Employees value empathetic service for their financial needs. Sunny Day Fund's commitment to understanding and compassion shines through, as highlighted by Ty's experience. Trust and genuine care create a supportive environment that fosters financial well-being, encouraging employees to lean on one another when needed.

 6. Saving for Life Goals Means More Savings and Better Resilience

Emergency savings should be part of an overall financial plan, considering both unforeseen events and positive life goals. By saving for both, employees put away more money, increasing their resilience in times of need. Mariana's plan to visit her family in Mexico exemplifies how saving for life experiences brings joy and financial freedom.

Building trust is essential as we engage employees. Providing education resources and in-person engagement, like Taurus experienced at a benefit fair, fosters employee participation and support. Virtual alternatives like webinars or Zoom office hours also facilitate engagement.

You are Not Alone

A concerning financial reality plagues American workers, with 64% having less than 3 months' worth of cash and liquid savings available to them. The situation becomes even more dire for 12% of workers, who find themselves with less than a week's worth of liquid savings.

The gravity of this issue is most acute for those earning less than $40,000 annually. Shockingly, 15% of this group would be completely unable to cover an unexpected expense of $400, even resorting to payday loans as a last resort.

As financial strain grows, an increasing number of individuals are turning to their 401(k) plans for support in dealing with even minor unexpected expenses. The data reveals that 17% of people would dip into their retirement plans to cover a $400 expense, marking a significant increase from the 4% reported in 2020. In fact, a staggering 22% of respondents admitted to tapping into their retirement savings in 2021.

With mounting financial challenges, employees are seeking ways to secure financial stability beyond their salaries. Emergency savings has emerged as a top-three financial benefit for workers earning less than $110,000 per year, ranking alongside retirement and health savings. This demonstrates a clear shift in priorities as people recognize the crucial need for accessible emergency funds.

In comparison, other financial benefits like earned wage access fall behind, with only half the appeal of emergency savings. Similarly, a financial literacy app, which could potentially offer valuable insights, is desired merely a fraction of the amount compared to emergency savings.

Do The Right Thing

Business owners we have a unique opportunity to change our employee’s entire family wealth trajectory. With opportunities such as the ESA, 401ks, education etc, you are the leading resource for your employees to get trust information.

Sadly, not all of you see it this way, you see people as pawns in the game. Reminder we are all pawns in someone’s game… TAKE CARE OF YOUR PEOPLE!

Next Week’s Issue

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