With the current economic environment exacerbating the financial situation of many workers, a new white paper shares insights on how emergency savings solutions designed for low-to-moderate income (LMI) workers can improve financial security and bolster retirement outcomes.
And plan sponsors and recordkeepers are uniquely positioned to build and offer high-quality emergency savings products, according to the paper by DCIIA’s Retirement Research Center (RRC) and Commonwealth.
As part of their study, DCIIA’s RRC and Commonwealth conducted qualitative and quantitative research in the first quarter of 2022 —first with focus groups of defined contribution (DC) plan participants, followed by a survey of nearly 1,000 LMI workers to understand what they would prefer in an emergency savings solution and to determine how emergency savings impacts retirement participation.
Women made up just over half (52%) of respondents; the researchers also oversampled for black and Hispanic/Latino participants to gain better insight into how emergency savings solutions can be better tailored to meet the needs of these workers.
Previous research by the group has found that those with lower financial wellbeing scores are more likely to be interested in workplace emergency savings programs. Moreover, their research has found that individuals with emergency savings are less likely to have accumulated debt, prematurely tap retirement savings, or take actions that jeopardize their financial future.
In this latest research, DCIIA and Commonwealth find that an emergency savings tool that prioritizes low fees and fast access will tailor to the needs and interests of LMI workers and will be helpful in growing savings, protecting retirement and building financial security. What’s more, employees believe employers should be playing a leading role in this space, the paper further emphasizes.
More specifically, the researchers found that:
- workers prefer no fees, no minimum balance requirements and fast access to funds;
- employees value incentives;
- incentivescan be leveraged by employers to encourage take-up;
- a lack of emergency savings hinders workers’ retirement plan participation; and
- employers need to continuously engage employees regarding their workplace financial benefits.
No Fees and Fast Access
According to the findings, no fees (34%), no minimum balance (17%) and immediate withdrawal of funds (16%) were the most preferred features. Other preferences included the ability to move savings to other financial institutions (13%), the ability to automatically save part of a paycheck (12%) and linking to a workplace retirement account (9%). These preferences stayed consistent regardless of race, gender or income.
“These findings demonstrate that plan sponsors and recordkeepers have clear guideposts on how features should be prioritized when choosing or designing a quality emergency savings solution,” the DCIIA and Commonwealth researchers note.
Of these, they note that the biggest concept for plan sponsors and service providers to grapple with based on the research will be the demand for liquidity—access to savings must be immediate and penalty-free during a time of need.
Incentivizing Engagement
At the same time, participants — not surprisingly — are overwhelmingly interested in incentives and said they can help motivate them to open a savings account. To that end, plan sponsors and recordkeepers have multiple options in structuring the incentive, the paper suggests.
Incentive options that were positively viewed included:
- a reward to open an account (98%);
- matching contributions (96%);
- a reward for consistent savings (93%); and
- a reward for reaching a target savings amount (92%).
Hindering Retirement Participation
The survey also found that workers with no emergency savings were significantly less likely to be contributing to a DC plan. As such, offering an emergency savings solution could be an effective mechanism to boost plan retirement participation amongst employees, the researchers emphasize.
Moreover, when looking at the population of those eligible but not participating in DC plans, they tended to be younger, have lower income levels, and be black or Hispanic/Latino, suggesting that an emergency savings solution for these populations should be prioritized as they remain financially vulnerable.
The paper further observes, however, that preference for an emergency savings account linked to a workplace retirement account was relatively low for LMI workers, indicating a challenge that in-plan emergency savings solutions might face with this cohort of workers.
Communication Strategies
Finally, given the current lack of auto-enrollment and payroll integration for emergency savings solutions, the messaging and delivery of a high-quality solution is essential to ensuring it is used by those who need it, the paper further advises.
As to employee benefit communication preferences, the researchers found that email is the primary place employees look for news about benefits, with 55% indicating their company should email about benefit information. In addition, many supported increasing the frequency of communication (35%), holding workshops (35%), or having HR representatives provide new updates (35%). Still, there is no one-size-fits-all communication method and employers need to continuously engage employees, the researchers further emphasize.
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