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An area of workplace benefits that has increasingly taken center stage is emergency savings, commonly referred to as emergency savings accounts (ESAs). These financial tools have become pivotal in promoting financial security among working Americans. With the SECURE 2.0 Act coming into play, ESAs are receiving increased regulatory attention, making them more relevant and critical than ever.
There’s a rich history behind ESAs, and today we’re tracing their evolution, from early origins, to responses to the COVID-19 pandemic, current trends, and future prospects. This trajectory shows us how emergency savings has transitioned from a novel idea to a crucial component of employee benefits.
The concept of emergency savings has deep historical roots that we can trace back to before modern times. The formalized method of depositing savings into structured bank accounts like the ESAs of today has evolved over time.
The practice of saving for emergencies dates back to prehistoric times, with early agricultural cultures setting aside surplus resources for unexpected events. This practice evolved into informal savings groups, like “susus” in West Africa, before the advent of modern banking in the 1300s introduced formal savings accounts. The 20th century saw further developments, including special-purpose savings accounts like Christmas clubs and the popularization of emergency funds by financial advisors.
As financial markets and products became more complex, governmental organizations and public agencies began to place more emphasis on financial literacy. One fundamental component of personal financial planning was the need for emergency savings.
Given this growing emphasis, employers have begun recognizing the importance of financial wellness for their employees. More organizations are integrating ESAs into workplace benefits, which gives employees the opportunity to automatically contribute to dedicated emergency funds.
One successful workplace emergency savings case study is UPS. With the aim of helping mitigate financial stress for their employees, UPS partnered with major financial services providers to develop an emergency savings program integrated into the company’s 401(k) plan. The program offers after-tax contributions for easier access and withdrawal without penalty.
The incorporation of ESAs had a notable impact on employees with low to moderate incomes. The program resulted in $10 million in new savings, with a 39% increase in participation in the first year alone. Over 75% of participants chose to contribute at least 2% of their pay, showing a significant step towards establishing a financial safety net.
A final achievement was the program’s positive influence on retirement savings. Employees who increased their after-tax contributions for emergency savings were twice as likely to boost their pre-tax retirement contributions, alleviating concerns about potential negative impacts on retirement savings. With a 76% participation rate, the UPS program shows the promise of emergency savings while also demonstrating that there’s room for even stronger performance of ESA programs.
The COVID-19 pandemic was an unprecedented challenge that shook the financial stability of a large swathe of Americans. A significant part of this instability was due to the lack of preparedness in terms of emergency savings. Let’s imagine a scenario where, prior to the pandemic, widespread ESAs with a minimum balance were a standard component of workplace benefits. How would this have influenced the economic outcomes of the pandemic?
The pandemic was a valuable learning opportunity for employers and employees alike, and the ensuing emphasis on emergency savings makes sense given the extreme uncertainty of recent years.
Today, a diverse range of organizations — including employers, financial institutions, payroll providers, and policymakers — have come together to prioritize ESAs for Americans. This collaborative approach has helped shift the broader public towards prioritizing short-term savings, extending the reach of emergency savings solutions to millions of workers. Notable aspects of ESA adoption include:
The patterns among organizations that use SecureSave to power their workplace emergency savings programs are insightful. Across the board, the employee adoption rate is 62%, which is notably higher than most employee benefits. Adoption has steadily increased in the time we’ve been measuring it as well - jumping from 56% as of 2022. Once an employee adopts the emergency fund, annual user retention is 95.5% with an average of $1,000 saved per participant in the first year.
The emergency savings offering appeals to organizations across a wide range of sectors. Not only are we seeing strong adoption among hourly and low-wage employers in sectors like manufacturing and healthcare, but high-care employers in professional services and other industries are adding emergency savings to strengthen already competitive benefits packages.
We find that the majority of SecureSave employers offer both a signup match and a payroll match for employees that participate in their emergency savings program. A signup match involves the employer contributing a certain amount upon an employee’s initial registration for the ESA program, whereas a payroll match involves a certain amount or percentage that the employer contributes towards participating employees’ ESA at each payroll. Here’s a look at the numbers:
Providing employee contributions or offering a match in some way helps encourage participation over time. Most organizations (85% of SecureSave customers) offer $100 or more in incentives to participating employees on an annual basis through one or more of these methods. Although participation in milestone bonuses is lower, they can be an impactful offering where employers contribute bonus funds to an employee’s ESA after an individual reaches a specified milestone — either a certain number of payroll contributions or a total dollar amount saved in their account. For example, an employer might offer a $100 or $500 bonus when employees hit a milestone like 26 payrolls (contributing a minimum dollar amount to their ESA at each payroll).
The sentiment toward ESAs among employers and employees in 2024 is decidedly positive and is quickly gaining momentum. Innovations and early deployments by industry players like SecureSave, Fidelity, Sunny Day Fund, and major recordkeepers highlight the essential role of ESAs in financial wellness programs.
Transamerica estimates that by 2026, over 40% of employers will offer an emergency savings program. With major corporations like Delta Airlines, Starbucks, Humana, ADP, Best Buy, and Truist (reported by BlackRock) offering robust workplace savings programs, some with employer matching, we’re likely to see additional Fortune 500 companies follow suit.
The SECURE 2.0 Act is set to play a pivotal role in promoting the adoption of ESAs, with the act in effect as of January 2024 and the IRS issuing initial guidance for employers on setting up in-plan emergency savings provisions. The act provides guidance on PLESAs, which are short-term savings accounts tied to a defined contribution retirement plan and are treated like designated Roth accounts.
Under SECURE 2.0, PLESAs are accessible to non-highly compensated employees who can be automatically enrolled. Employers can match contributions up to $2,500 or a lower limit set by the plan. Participants can withdraw at least once per month, with distributions treated as qualified. These provisions facilitate emergency savings for a critically underserved population while safeguarding against the early distribution tax penalty.
The automatic enrollment option is particularly promising, with current data showing that participation in ESAs can jump from as low as 1% to as high as 71% when auto enrollment is implemented. This legislative support underscores a significant shift toward recognizing the need for ESAs as a standard part of employee benefits packages.
The current market size of workplace ESAs is already substantial, and poised to grow significantly in the coming years. Recent SecureSave research suggests that the demand for ESAs is so high that:
With such significant demand and promising case studies in the market, employers will be compelled to respond accordingly.
A quick examination of the adoption of Health Savings Accounts (HSAs) and 401(k)s sheds some light on the potential growth trajectory of ESAs. Both HSAs and 401(k)s faced initial reluctance but grew as their benefits became clearer:
If ESAs were to follow a similar trajectory, the market growth will be explosive in the next 5-10 years.
As we look forward, ESAs are anticipated to become a foundational element in workplace benefits, contributing to employees' financial stability and employers' productivity. With growing regulatory attention, more market players coming on board, and a growing recognition of their importance, it’s possible that in the future we could see ESAs become as commonplace as 401(k)s. SecureSave is proud to help lead the way in mainstreaming ESAs to ensure that employees can save for the unexpected and achieve greater financial resilience and well-being.