With 37% of Americans unable to manage a $400 emergency with savings, and lower-income households, particularly Black, female-led households making under 60K per year disproportionately affected, the issue of emergency savings is an urgent one for much of America. COVID-19 further emphasized the need for employers and recordkeepers to support employees in building emergency savings.
Commonwealth presented new research about drivers and considerations of recordkeeper-provided emergency savings and discussed the implications of these findings for recordkeepers, plan sponsors, retirement advisors, and financial institutions during our webinar Recordkeepers’ Role in Providing Emergency Savings for an Inclusive Recovery, hosted in partnership with DCIIA, and sponsored in part by BlackRock’s Emergency Savings Initiative. Speakers included Warren Cormier, Executive Director at DCIIA; Emily Kolle, VP, Product Management at Fidelity; Tim Rouse, Executive Director, at the SPARK Institute; and Jeff Cimini, SVP, Head of Institutional Product at Voya Financial.
Moderated by Catherine Wright, the webinar presented research from qualitative interviews with 9 of the largest recordkeepers, representing ~58M plan participants, and 7 large plan sponsors, representing ~870K employees. The overarching theme from the interviews was that it is no longer a matter of “if” but rather “how” and “when” recordkeepers will offer emergency savings products.
The recordkeeping industry recognizes the need for employee access to quality emergency savings products. Recordkeepers are favoring out-of-plan solutions, though may also offer in-plan solutions to some plan sponsors. Three takeaways from the webinar for industry leaders to keep in mind include:
- Define emergency savings: A shared definition of emergency savings that includes expense and income shocks is critical to address the needs of employees, especially low- and moderate-income (LMI) employees. Focusing on 3-6 months’ expenses (to cover income shocks) without acknowledging the importance of building even a few hundred dollars for expense shocks can deter employees from starting to save.
- Meet plan sponsor priorities: The seven plan sponsors interviewed highlighted the following priorities in considering offering emergency savings products: fiduciary responsibility, ensuring employee engagement, limiting the total number of vendors, and being mindful of cost.
- Simplify product design: To make saving easy and accessible, Commonwealth recommends that product design lead with emergency savings; automate experience that users can control; and incorporate positive, inclusive messaging.
As more emergency savings solutions launch, it’s critical to ensure that they meet the needs of LMI employees. During our qualitative interviews, one recordkeeper said, “If you can get a family to have $1,000, that starts to prevent the need for payday loans, starts to make a lot of things less stressful.”
Features important to plan participants emphasized in the webinar included access and freedom. Cormier of DCIIA said, “Freedom from feeling bad about not being able to provide for family and freedom to make decisions without having money be the most important factor.”
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. Partners including UPS, Mastercard, MX, and Self Financial have joined BlackRock’s Emergency Savings Initiative to help their employees and customers take the essential first step toward long-term financial well-being.