Saving Through a Crisis: LMI Plan Participants’ Financial Strategies During COVID-19

Saving Through a Crisis: LMI Plan Participants’ Financial Strategies During COVID-19

Friday, October 9, 2020

ESI industry expert Commonwealth’s “Saving Through a Crisis” series shares their latest research, in partnership with the Defined Contribution Institutional Investment Association’s Retirement Research Center, on how low- to moderate-income plan participants are handling their retirement savings during the pandemic.

Americans are now about half a year into the COVID-19 pandemic and the resulting recession, and lower-income Americans continue to bear the brunt of the economic downturn. To understand how these Americans are managing the pandemic’s impact to their financial security, Commonwealth is partnering with the Defined Contribution Institutional Investment Association’s Retirement Research Center on a series of surveys with low- to moderate-income (LMI) plan participants on how they are handling their finances and retirement savings during COVID-19.

The survey* was fielded between July 2 and July 15, two months after our first survey. This second survey fielding occurred before:

Although our focus is on workplace retirement savings, in both our first and second survey, we found that relatively few people are taking withdrawals or 401(k) loans during the pandemic (6% and 8% of respondents in the first and second surveys, respectively).

Instead, they are reducing their expenses, charging more to their credit cards, and withdrawing from their emergency savings. LMI plan participants are turning to emergency savings for financial stability in this crisis. The data indicate that those who save for emergencies are less likely to tap their retirement savings, and those who self-report as less financially stable express strong interest in a workplace emergency savings program.

Here we outline three key findings from the second survey and what employers can do to support emergency savings:

  1. Plan participants are using their emergency savings to weather the pandemic: Even during the pandemic, the majority of LMI plan participants have been saving for emergencies: 66% of respondents have saved for emergencies since February of this year. Respondents are also tapping these savings at high rates, with 42% of respondents who save for emergencies having withdrawn from those funds in the past seven months. Respondents who have lost income are twice as likely to have done so; of respondents who save for emergencies and have lost income during the pandemic, 65% have withdrawn from their emergency savings, compared with 33% of respondents who save for emergencies but have not lost income.
  2. Current savers are half as likely to dip into their retirement savings during the pandemic: LMI plan participants who have saved for emergencies since the pandemic hit are half as likely to tap their retirement savings: 8% of savers have taken or are planning to take a loan or withdrawal, compared with 16% of non-savers. For some respondents, this connection might be caused by income loss or another financial shock that simultaneously drives retirement withdrawal and makes saving more difficult; respondents who have lost income since February 1 are less likely to currently save for emergencies (52% vs. 76% of those with unchanged or increased income) and are more likely to take or plan to take a loan or withdrawal from their retirement plan (17% vs. 7% of those with unchanged or increased income).
  3. A low self-assessment of financial well-being drives employees to turn to their workplace for support: An analysis** of the survey results found respondents with lower self-reported financial well-being*** are more likely to be interested in a workplace emergency savings program. 53% of respondents below the median score of financial well-being (53 points) were very or extremely interested in a workplace emergency savings program, vs. 40% of respondents scoring above the median.

Unmet Demand for Workplace Emergency Savings Programs

These survey results indicate that emergency savings are serving their intended purpose—both for solving day-to-day pinches and as a cushion for more severe hardships such as job loss—but there is a gap between LMI Americans’ intent to save for emergencies and the availability of high-quality savings accounts. Commonwealth has found in recent qualitative research that the lack of appropriate savings tools is a primary barrier to saving during COVID-19, particularly among people trying to save for the first time. Our survey indicates an unmet demand specifically for employer-provided tools: 46% of survey respondents are very or extremely interested in a workplace emergency savings program, but few employers offer one today.

Moreover, our third finding suggests that employers who offer these emergency savings programs would see increased interest in these programs during times of greater financial security and greater interest among employees who report struggling with financial security. The data suggest that these programs help those who need them most.

Employers and registered investment advisors (RIAs) can request that retirement record keepers meet this unmet demand by offering an in- or out-of-plan emergency savings solution in their workplace retirement plans. As the recession deepens and more Americans struggle to make ends meet, employers should act quickly to support their employees—and will find that reducing their employees’ financial stress has a positive impact on their corporate bottom line as well. The need for these programs has always existed, however, there has been no greater need than now; supporting workers in building emergency savings and financial security will have a lasting impact.

Commonwealth will continue to track LMI plan participants’ actions in the coming months. If you are a plan sponsor or record keeper interested in offering emergency savings and would like to learn more about how you can support your plan participants, contact Nick Maynard at

* This survey collected 500 responses from LMI defined contribution plan participants (between $20,000 and $75,000 in household income). Respondents must 1) have traditional (W-2) part- or full-time employment or had as of February 1, 2020 and 2) have a defined contribution plan that they currently contribute to or had contributed to on February 1, 2020. The plan must be sponsored by their current employer or their employer as of February 1, 2020.

** A logistic regression was run on the survey data. Due to some blank (“Not sure”) responses, the sample size for the regression was 471.

*** Self-assessed financial well-being was measured by the Consumer Financial Protection Bureau’s abbreviated 5-item Financial Well-being Scale questionnaire. The scale measures financial well-being as including four elements: control over day-to-day, month-to-month finances; financial freedom to make choices to enjoy life; capacity to absorb a financial shock; and being on track to meet financial goals.

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.