What do you feel when you read that 57% of Americans cannot pay for a $1,000 emergency from their own money? Chances are you, like me, can probably identify with that situation because you might’ve been there yourself.
When we asked workers who have lived through such a financial emergency, the closest sensation that resembled what they felt was drowning—traumatic and all-encompassing.
Now imagine this personal financial vulnerability against a backdrop of inflation, millions of unfilled jobs, and workers going on strike. Is it any surprise that workers’ top priority remains their financial security?
Back to Basics: The Core Employer Value Proposition
Why is workers’ financial instability the employer’s problem?
Some employers see their current responsibility end at pay and government-mandated benefits. Financial education and literacy, or the lack thereof, have become the sole scapegoats for the poor financial outcomes we keep seeing in individuals. Often, leaders proudly share their own bootstrap stories as evidence that it’s the workers’ fault.
Unfortunately, those same workers work in an imperfect system. Whether intentional or not, that system asks workers, whose current pay can barely cover rent and necessities, to save for insurance and retirement and then chastises them when they choose incorrectly or request hardship withdrawals. Employers are then frustrated that these individuals leave for small wage hikes and shocked when their health premiums go up as their workers’ health goes down.
The ultimate relationship between an employer and employee stems from worker financial security. When this balance is off, the organization comes under fire for poor retention, productivity, and well-being.
In other words, the organization is paying more for additional costly overhead and potentially losing revenue when its workers struggle financially.
So, it’s not just about doing good—it’s about building a growth-capable organization.
Emergency Savings Program Driving Better Retention and Real Savings Behavior
We recently conducted an internal study of a 700-person employer that rolled out a workplace emergency savings program in Jan 2023. Throughout the turbulence of the last nine months, we were pleasantly surprised about the impact the program has had.
Some highlights: 52% of employees making low and moderate wages participated, saving nearly $2,100 per year on average. From the initial rollout to now, several withdrew from their emergency savings, which is important—and then a whopping 82% increased their savings contributions. Employee testimonials affirmed the well-being improvement already correlated with higher emergency savings.
Here’s where it becomes most interesting: we discovered a statistically significant (p<0.05) 33% lower turnover in the participating pool. Even if you consider selection bias, this is a major result—saving the organization hundreds of thousands of dollars in turnover costs.
We’re excited to uncover more lessons, like how emergency savings impact healthcare costs. If recent data from the Financial Health Network is any indication, we hypothesize better self-reported mental and physical health as employees become more financially resilient.
A New Retirement Savings Framework: Emergency Savings as the Foundation
One of the biggest threats to America’s retirement security is the growing leakage due to plan loans and hardship withdrawals: 37% of plan participants have tapped their retirement savings early. Thought leaders have also uncovered that BIPOC and female populations are more likely to draw from their retirement savings, in part due to having little to no emergency savings.
Though we see this smoke turning into fire, some plan sponsors and consultants remain dubious, arguing that emergency savings contributions could “steal” from retirement savings contributions. That doubt, in turn, has delayed the response to the growing crisis.
Research and recent rollouts have disproved this cannibalization fear. In fact, emergency savings programs have lowered retirement savings plan leakage. For employees who are not yet saving for retirement, emergency savings are acting as a stepping stone, as we found in our own rollouts in the hospitality sector. And for those already participating, it’s given financial confidence to increase contributions—Delta found ESA participants were twice as likely to increase their retirement contributions, among other great retirement plan results.
What has emerged is a new framework for retirement savings—where an emergency savings benefit is not an add-on but rather foundational to the health and security of workers’ hard-earned retirement benefit. Based on Congress’ recently passed Secure Act 2.0 with emergency savings provisions, we are already on the way to adopting this way of thinking.
Business Case and Fiduciary Duty
Emergency savings programs are both good and great. They improve worker financial health while delivering better business results. As Q4 strategy conversations are underway, delivering the message about employer-sponsored emergency savings programs is a natural solution to fulfill employers’ fiduciary duty as retirement plan sponsors.
With workers more focused on financial health than ever, now is the time for organizations to act and meaningfully improve financial outcomes for companies and employees.