In the face of uncertain economic conditions, employers need to consider that some employees cannot rely solely on benefits such as health insurance and retirement plans. Many workers may seek immediate assistance to cover accidents and expenses that they may not be able to manage on their own.
How Employer-Supported Emergency Savings Plans Work
Employer-supported emergency savings plans come in various forms, but they all serve the same purpose: to provide employees with access to liquidity when they need cash immediately.
Advantages and Disadvantages of Emergency Savings Plans
There are advantages and disadvantages to employer-supported emergency savings plans:
Advantages
Quick access to funds and reduced penalties: Allowing workers quick access to a savings account or any other readily available type of account can be crucial to their financial well-being. Savings accounts can help prevent employees from resorting to using retirement savings for emergencies. Even if you decide to withdraw funds early from your retirement account to cover expenses, it can take several weeks to actually receive that money and may incur taxes and penalties that ultimately reduce the amount you receive. In times of economic crisis or downturn, people need money immediately without penalties.
An option for companies that do not offer retirement plans: Employers who do not offer retirement plans can provide savings initiatives by opening accounts at banks or other financial institutions. This can give you quick access to funds without the routine procedures related to retirement plans like 401(k) or similar retirement schemes.
Coverage of fees and costs: Some individuals may avoid opening traditional savings accounts out of fear of not meeting minimum savings or deposit requirements. Employer-supported savings plans can cover the fees and costs that you might typically have to pay.
Disadvantages
No guarantee of matching employer contributions: While employee contributions to their savings plans are important, employer contributions mean that workers can double their deposits. These incentives can increase employee participation in plans they might not otherwise join. However, even though you may have the opportunity to contribute to a savings account through work, there is a chance that matching contributions from the employer may not be available.
Lower amount for the future: For low- to moderate-income individuals who are already struggling to save for retirement, putting money into an emergency savings plan may mean they contribute less – or don’t contribute at all – to their retirement account. This adds to the already significant concern that many Americans have less than $100,000 in retirement savings, according to a TD Ameritrade survey in January 2020.
Additional costs for the employer: With new accounts come new fees for employers. Small businesses or those already operating with additional costs may not be able to bear new fees at this time, or may lack the administrative capacity to implement it. This means that your company may not be able to offer this option even if you present it to your HR department.
Conclusion
With the impact of the public health crisis and economic downturn affecting many families, you may need immediate financial assistance more than ever – especially through your employer. If you believe that an employer-supported emergency savings plan is suitable for your company, speak to your HR department and potential plan administrators. They can consider implementing a plan and addressing the financial, logistical, and operational issues associated with it. In the process, you may be able to gather ideas and feedback from other employees through anonymous surveys and group or individual meetings. If your company can provide this option, it could be crucial for your financial stability.
Source:
https://www.thebalancemoney.com/how-employer-sponsored-emergency-savings-plans-work-5179358
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