Employer-sponsored emergency savings products were needed long before COVID-19, but the pandemic has both underscored and exacerbated the detrimental impact that financial insecurity can have on employee performance and retirement readiness. Although the CARES Act allows retirement plan participants to make penalty-free withdrawals from their retirement accounts, this legislation reveals a lack of short-term savings options that employees can turn to.
As part of our collaborative webinar series, Commonwealth — in partnership with BlackRock’s Emergency Savings Initiative — hosted the discussion, How Record Keepers Can Address Emergency Savings, featuring panelists Jack Barry, John Hancock; Zhivago Valesco, MassMutual; Kelly Rome, Prudential; John Steber, Voya, and moderated by Commonwealth’s Nick Maynard.
The group discussed the need for employer-sponsored short-term savings and how record keepers and plan sponsors can take action to help employees cover their emergencies without sacrificing their long term-goals.
Three Key Takeaways
1. Record keepers have an opportunity to address emergency savings and keep employees on track to reach their financial goals. For Zhivago Valesco (MassMutual) and Kelly Rome (Prudential), data showed that a lack of short-term savings stopped employees from reaching their financial goals.
According to MassMutual’s research, Valesco noted that challenges like emergency savings and student debt prevented employees from enrolling in retirement plans, while Kelly Rome stated that Prudential’s data indicated that employees have been taking loans from their 401k to cover emergencies and are stopping their contributions.
Jack Barry explained that in light of COVID-19, the top hits to John Hancock’s website have been to information on the CARES Act and emergency savings. John Steber described the COVID-19 financial crisis as an “accelerant”: “You turn on the news and can see the real impact that this lack of savings is having on so many Americans. It’s raising awareness among customers, among employers…[the need for emergency savings] was something we knew was coming, but now we have the attention and cover to do something about it.”
2. Emergency savings solutions can be built into the retirement experience, and can serve as an on-ramp for long-term financial well-being. Adding an emergency savings solution to a retirement plan allows record keepers to personalize their offerings and provide a more holistic service. Jack Barry described John Hancock’s approach as “understanding where each person is and having a more specific conversation, whether that’s preparedness for an emergency or student loans or what 20 years from now is going to look like.”
In order to further increase accessibility, MassMutual is exploring the idea of adding a payroll deduction feature to their out-of-plan solution. Kelly Rome added that in light of this crisis, record keepers can engage new participants by offering a more liquid savings option:“When we look at the plans we have now, we’re actually seeing an impact on people who are first entering the plan. We’ve seen people who hadn’t participated in the retirement plan join the emergency savings plan, like a gateway. If they’re worried they can’t save for retirement, they’ll put it in something that they know they can get the money out of.”
With an emergency savings option, record keepers can build trust with employees and address their short-term needs, making them more likely to listen to retirement messaging as well.
3. Employers should engage in conversations with their record keepers to explore how their financial wellness offerings can be enhanced with in-plan and out-of-plan emergency savings solutions. John Steber recognized that plan sponsors are also dealing with this financial crisis, and that record keepers “need to look at not just developing the solutions, but also making it easy for plan sponsors to support and enable it.”
As plan sponsors consider their options, they can find data from their record keepers on the importance of emergency savings and the type of solution that may be best suited to their employees. Zhivago Valesco underscored the importance of plan sponsors to consider emergency savings through citing data on what participants are most looking for.
On MassMutual’s “Map My Finances” site, emergency savings is the number one subject that participants are researching. John Hancock’s data for plan sponsors showed that “last year, 50% of employees were worried about personal finances at work, and 40% spend at least 3 hours per month working on financial issues at work.” Plan sponsors should consider emergency savings in light of both employee demand and the impact that financial stress has on job performance.
Commonwealth has been working with record keepers to develop these features in defined contribution accounts. As employees and plan sponsors alike navigate this current need for emergency savings, record keepers can implement solutions that ensure their stakeholders are prepared going forward.
BlackRock’s Emergency Savings Initiative
BlackRock announced a $50 million commitment to help millions of people living on low to moderate incomes gain access to and increase usage of proven savings strategies and tools – ultimately helping them establish an important safety net. The size and scale of the savings problem requires the knowledge and expertise of established industry experts that are recognized leaders in savings research and interventions on an individual and corporate level. Led by its Social Impact team, BlackRock is partnering with innovative industry experts Common Cents Lab, Commonwealth, and the Financial Health Network to give the initiative a comprehensive and multilayered approach to address the savings crisis. UPS, Uber, Mastercard, Etsy, Brightside, Arizona State University, and Acorns have joined BlackRock’s Emergency Savings Initiative to help their employees, customers, gig workers, and college students take the essential first step toward long-term financial well-being.