Emergency savings: Bridging the gap between short and long-term savings

37% of Americans don’t have $400 in liquid savings. That percentage increases for women to 58% and for Black households to 72%.¹

And where there’s a short-term financial stability problem, long-term financial stability problems aren’t far behind. BlackRock’s Emergency Savings Initiative found that workers with inadequate emergency funds are 13 times more likely to take a hardship withdrawal from their 401(k)s. The good news is, not only do 72% of workers say they would participate in an emergency savings program,² workers with emergency savings are 70% more likely to contribute to their company-sponsored retirement plan.³

In our series with the BlackRock Emergency Savings Initiative and Commonwealth, we examine this emergency savings benefit – the why, the how, and the who. We look at:

• In-plan and out-of-plan solutions, and what employers may want to consider when selecting one or the other: Does it matter that participants have immediate liquidity? That it’s connected to a retirement plan? That it is eligible for auto-enrollment?
• Incentive structures, including rewards and matching: 87% of workers say they would participate in an emergency savings program if an employer match was offered.⁴
• Awareness and engagement strategies, such as targeted communications and peer-to-peer messaging.
• Demographic data in terms of understanding factors such as the frequency of hardship withdrawals and retirement participation.
• Two new Secure 2.0 provisions regarding emergency withdrawals and an in-plan emergency savings program.

Advisors and consultants can play an important role for that last bullet, helping plan sponsors with navigating these new provisions, understanding the policies, and implementing their solutions.

85% of DC consultants believe that the adoption of in-plan emergency savings programs will increase in the next 3 years,⁵ so expect more and more plan sponsors to express interest. It’s an opportunity to build meaningful relationships with sponsors in various stages of adopting a solution.

Finally, we look at case studies from two large employers who implemented emergency savings programs. UPS, for example, found that employees were 2x as likely to increase contribution to their retirement account if participating in the emergency savings program, and ADP saw a 3.5x increase in monthly average number of new users.

Many other large employers — Best Buy, Starbucks, and Delta, for example — have also started to introduce emergency savings programs, and it is projected that by 2026 more than 40% of plan sponsors will offer one to their employees.²

“Emergency savings is important because it helps our people prepare in their financial wellness,” said UPS Global Retirement Strategy and U.S Benefits Director B.J. Dorfman. “We just want to make it easier for people to save for those emergency situations.⁶”