There’s not much room for savings in today’s consumer society, but the consequences of not having a rainy day fund can be distressing. Even a minor emergency such as an unexpected car repair can send employees to HR to beg for a cash advance or raid their retirement funds, despite the penalty for early withdrawal.
Companies are increasingly stepping in to help their employees prioritize savings, with emergency funds that relieve stress and increase productivity, as well as safeguarding retirement plans so that money will still be there when it’s really needed.
Kroger was an early adopter of the Split to Save program, which allows employees to have the bulk of their pay deposited into their checking account and a designated amount into a savings account for an emergency fund or other savings purpose. The program was launched in 2017 by the Consumer Federation of America and is operated by its America SavesOpens a new window campaign.
The group estimates that the average American employee spends 28 hours every monthOpens a new window stressing about finances, costing employers $5,000 a year in lost productivity.
Automatic deductions are the key
Springdale Ice Cream and Beverage Co., a Kroger business, enrolled in the Split to Save pilot scheme, adapting the automatic deductions common with retirement savings accounts to a more general savings program.
Wheeling, West Virginia-based Wesbanco was another early adopter, joining up in February 2018. Around 13% of its employees have signed up and put aside an average $132 a month in their savings accounts. The bank hopes to get as many as 800 of its 2,000 employees to sign up.
In another savings program, Prudential Retirement, which administers 401(k) accounts, enables employees at 20 client companies to contribute to both the retirement fund and an emergency-linked savings account via an after-tax deduction. Prudential is lobbying for legislation to make this deduction subject to automatic enrollment, with the possibility to opt out.
SunTrust has developed an incentive savings program for its own employees that awards the participant $1,000 if they follow an eight-part financial education course and take actions such as channeling at least $20 a month into emergency savings. The company offers the program at cost to 200 other companies, including Home Depot.
Middle class not exempt
Nonprofit AARP and the world’s largest investment manager, BlackRock, are among other groups working on plans to help employees build an emergency fund. Federal authorities have determined that 30% to 40% of funds put into retirement savings accounts are instead used as cover for income shocks.
The need for emergency savings is not limited to minimum-wage earners but affects middle-class employees as well. Expenses in median-income households can fluctuate by up to $1,300 a monthOpens a new window . An unexpected expense such as urgent home repairsOpens a new window can run to $2,000.
A recent survey of 1,000 employees by Morgan StanleyOpens a new window found that 78% of those experiencing financial distress say it’s a distraction at work. Two-fifths say they have too little saved to cover three months of living expenses – the minimum recommended for an emergency fund. Employees earning more than $100,000 were not exempted, with 52% reporting debt due to unexpected expenses and inadequate savings.
Wellness works
Companies are becoming better aware of the need for financial wellness not only as a support for employees but as a boost to their own bottom line, part of a growing emphasis on employment wellnessOpens a new window in a broad sense.
BrightPlan, which provides financial wellness programs to Fortune 1000 companies, recently strengthened its platformOpens a new window with enhanced investing and budgeting tools. The program offers fiduciary advice, financial education, goals-based planning, automated investing, progress tracking and spending analysis, along with tools to aid debt reduction and improve budgeting. It also gives employers an overview of financial wellness across its workforce, helping to identify further opportunities to improve employees’ financial acumen.
Vitality Group, which provides health and wellness programs to employers and health plans, has added the SmartDollar financial wellness program to its offerings. SmartDollar aims to change participants’ behavior to use income for savings and investment rather than paying down debt.
Even personal finance guru Ric Edelman has given financial wellness programs a good gradeOpens a new window , though he acknowledges that most of the evidence so far is anecdotal. He says it gives people a framework to help them achieve their goals rather than just making random sacrifices; it can lower stress, give individuals more confidence in conducting their financial affairs, and make them feel better about their employer.
Financial planner Michael Barry sees financial wellness as the future, as employers and lawmakers acknowledge that life is about more than retirement. He forecasts widespread use of artificial intelligence, which together with blockchain will free participants from record-keeping and enable a wider set of choices.
All this will revitalize the role of the employer, he says, making them re-think ways in which they can add value for employees.