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Emergency Savings Accounts having a moment...

Emergency savings accounts offered by employers are back in the news. In Washington, there are proposals to allow for distributions from 401K plans of under $1,000 without penalty to address emergency savings. For many employers, the first step is to determine whether an in-plan solution or out-of-plan solution makes the most sense.

With direct deposit just about any employer can guide a participant through the process of setting up these emergency accounts at their current bank of choice. The question becomes, does making it slightly less accessible improve the employees use of the account? For employers that would prefer an in-plan option, that obviously opens up a whole host of recordkeeping and testing issues. Progressive employers will need to wait on Washington a bit longer to clarify what would be allowable.

Finally, what about employers looking to compete for talent in a very competitive labor market? They may want to offer matching contributions or other incentives to get the ball rolling on these types of accounts. For most small employers (under 100), the benefit of adding these types of options may quickly be offset by the administrative burden they can present. So while all employers would like their employees to be less stressed financially (and hopefully more productive because of it), the fixes to having some sort of emergency savings account are still a ways off from being truly streamlined.

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