While employers may eventually choose to offer such “sidecar” savings accounts, stand-alone emergency savings programs are already available from financial technology start-ups and established retirement plan administrators. With emergency savings offerings, “it’s really important to be broadly available and simple to use,” said Emily Kolle, a vice president who oversees the emergency savings offering from Fidelity Investments, one of the largest retirement plan administrators.
Emergency savings — a cash cushion available in the event of a job loss or surprise expenses like car repairs or medical bills — are a concern for many Americans. In a recent survey by the financial site Bankrate, about a third said they would have to borrow to cover a $1,000 unexpected expense. And almost a quarter of consumers have no savings set aside for emergencies, according to the Consumer Financial Protection Bureau.
The Secure 2.0 law has two main provisions aimed at helping workers cover surprise expenses. First, it allows employers to automatically enroll workers in emergency savings plans tacked on to their 401(k) accounts. (Stand-alone account offerings, in contrast, can’t sign up workers by default; employees must choose to enroll.)
Second, employers may let workers withdraw up to $1,000 a year, without penalty, from their retirement accounts to cover surprise expenses. (Employers may already offer “hardship” withdrawals from retirement plans, but workers typically owe a 10 percent tax penalty if they are younger than 59½, in addition to ordinary income tax on the amount withdrawn.)
The Plan Sponsor Council of America, a nonprofit group representing employers, found tepid interest in the Secure 2.0 options. In a recent survey of council members, only about 2 percent said they were interested in offering both the savings and withdrawal options. Half said they weren’t interested in either option, while more than a third said they weren’t sure.