No emergency savings? New Workplace Benefits Are Designed To Help

Nearly one in five Americans say they didn’t save any money in 2021, according to the study. MagnifyMoney survey

Saving can be especially difficult for low- and middle-income consumers. The study found that of those who earn $ 35,000 or less a year, almost a third of respondents said they did not save at all last year.

The pandemic has become a wake-up call for many Americans to prepare financially for unforeseen expenses – from job loss or medical expenses to car repairs. “I think Covid has identified the need for additional savings in case of emergencies, especially for low- and middle-income households,” said Jeff Cimini, senior vice president of Voya Financial.

A poll from Betterment found that nearly half of full-time workers – 46% – who didn’t think they needed an emergency fund before the pandemic say they need it now.

Employers took note. They offer employees several ways to accumulate reserve funds, from savings programs through banks to special accounts alongside traditional retirement plans. Another benefit in the workplace – Health Savings Accounts or HSA – can also be used to cover urgent medical needs.

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Benefit experts say if employees have access to other savings options, they are less likely to dive into their 401 (k) plans or other retirement savings to cover those costs. According to Investment Company Institute. While this is a relatively small proportion, it is the highest retirement plan withdrawal rate in more than 10 years of ICI survey data.

During this pandemic, “one of the things we saw about Voya in our retirement business was a significant increase in the number of employees using their long-term retirement savings to meet short-term needs,” Cimini said. Voya Financial began offering its clients in the workplace a wide range of bailout options in 2020.

Around 26% of funders of defined contribution plans allow Roth retirement accounts or after-tax contributions to create ’emergency funds’. survey by consulting firm Willis Towers Watson. Another 60% of plan sponsors are interested in offering one of these options to help employees accumulate savings that can be used for short-term needs.

“We are seeing a lot of activity from our clients trying to help their employees to better cope with this very difficult period,” said David Amendola, senior director of Willis Towers Watson. “Employers are increasingly beginning to accept and think about different ways to implement these types of emergency savings accounts so that employees can access funds more easily and in a targeted manner.”

There is a real advantage to investing in HSA.

David Amendola

Senior Director, Willis Towers Watson

HSA is another financial wealth that employers offer to help workers accumulate contingency savings. You must have a High Deductible Health Plan (HDHP) to participate. If you do, in 2022, you can deposit up to $ 3,650 in HSA for individual insurance and up to $ 7,300 for family insurance. Unless you are using HSA money for immediate medical expenses, unspent funds may carry over from year to year.

“This is a way to cover this franchise if you have a lot of expenses a year,” said Roger Young, a certified financial planner in Baltimore, of T. Rowe Price. “It’s also a way if you can set that money aside for the long term for investment – and you get big tax breaks.”

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