Should your company invest in an employer-sponsored emergency savings program? Whether you’re looking for the best benefits to offer this coming year or need strategies for recruitment and retention, an emergency savings account (ESA) solution can be a financial wellness remedy for your employees and your business.
Learn how an ESA works, its benefits, why you should consider offering one to your employees, and how you can increase participation if you do offer an emergency savings program.
What is an ESA?
An ESA, or emergency savings account, is a distinct savings account designed to help you save for emergencies. The funds, ideally between six and eight months of your expenses, should not be invested but rather ready in case something unexpected happens.
An employer-sponsored ESA is when an employer provides employees with an emergency savings account, often where employees can contribute directly from their paychecks. Some employers match a dollar amount or percentage of savings up to a certain amount, provide bonuses, and more.
Unlike other employee benefits programs like a 401(k) or pension plan, an employer-sponsored ESA doesn’t have ERISA restrictions or requirements. This can make implementation easier for an ESA and allow for easier adoption.
Emergency savings have recently come more into focus with the passage of SECURE 2.0, which creates new retirement savings incentives, including 401(k)-linked in-plan ESAs. These plans are subject to certain additional rules, including a $2,500 account maximum and an inability for employers to contribute directly to emergency savings, but the legislation has brought ESAs into the retirement savings spotlight.
When an employer shows that they care about employee financial well-being by offering an ESA, that can help attract and retain employees. Offering a match for part of an employee’s savings (for example) can stand out to new talent looking for jobs at your company and show existing employees you’re investing in their financial future.
The Importance of Offering an ESA
So why should your company offer an ESA to its employees? Perhaps most importantly, to benefit its employees. An overwhelming plurality of employees want an emergency fund as their top new benefit option, with 45% choosing it.
Here are just a few of the benefits an employer-sponsored ESA provides:
Reduced financial stress: An ESA can help your employees feel more secure in their finances, which helps cut down on workplace stress and create a more positive work environment. Employees may end up performing better because they aren’t focusing their time on financial concerns.
Help with unexpected emergency expenses: Emergency savings provide a financial safety net for employees when the unexpected happens, whether that’s a medical emergency, car troubles, or something else. A solid financial backing in an ESA helps prevent employees from having to borrow money from their 401(k) or family or use credit cards for these expenses.
Recruitment and retention: As part of a benefits package, an ESA can be a tool to attract new employees and increase loyalty to a company, helping retain existing talent. When a company invests time and money in their employees, they often feel invested, too.
How To Set Up an ESA Program for Your Employees
If your company has decided to offer an ESA program, it’s important to choose one that will benefit your employees. Your 401(k) recordkeeper may offer in-plan emergency savings options that are attached to your retirement plans, though these will have contribution limits and eligibility criteria based on income.
Out-of-plan ESAs won’t have these limits, so all employees will usually be able to take part, and an employer can set the parameters of the program more broadly, offering things like a match or bonus for signing up.
Whether you choose an in-plan or out-of-plan ESA, it’s essential to communicate the financial wellness benefits of the program to your employees so a higher percentage of them decide to participate. You can educate employees about their new ESA through remote sessions, direct mail, or through email and text messaging.
One method to encourage employee participation is to incentivize through bonuses and contributions, either at the start, at each paycheck, or both. Large employers like Delta and Starbucks have added emergency savings programs with incentives for their employees recently, leading the way for large employers in the U.S.
While it’s still early for employers offering emergency savings benefits, 27% of employees surveyed in a recent Betterment study said they would consider switching employers if offered employer-sponsored emergency savings.
The Long-Term Benefits of Offering an ESA to Employees
When an employer decides to offer an ESA to their employees, they’re doing more than just offering a short-term savings solution or easy money to their employees. The company is working toward helping their employees build a financial future for themselves, starting as a basis for financial wellness and well-being.
The benefits can be staggering — improve employee financial health and stability, for example. The average employee who saves with SecureSave saves $1,000 in their first year, ready to be used for emergencies. According to Bankrate, fewer than half of Americans have access to $1,000 to cover an emergency expense. That puts employees with access to SecureSave for a year in a better position than half of their peers. And a new study from SecureSave finds it’s even more dire for those without emergency savings, with 67% of those surveyed unable to afford a $400 expense.
For those employers offering ESAs, their employees are more likely to be satisfied and loyal, creating an improved company culture. They’re more likely to recommend friends to a job at the company and improve the reputation overall. Happy employees create a better atmosphere to work in for everyone.
There are so many benefits to offering an ESA to your employees: from financial well-being, to reduced stress, increased productivity and loyalty — it’s easy to see why 95% of SecureSave clients stay with us year over year.
Learn more about SecureSave today and consider implementing employer-sponsored emergency savings at your workplace.