Companies Helping Workers Build Emergency Funds

Summary

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WSJ Your Money Briefing

Episode: Companies Helping Workers Build Emergency Funds

Date: June 14, 2019
Host: J.R. Whalen
Guest: Ann Tergerson, WSJ Retirement Reporter

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Episode Overview

This episode explores the growing trend of employers offering programs and incentives to help employees build emergency savings. With many Americans struggling to set aside enough for emergencies and retirement, companies are trying new approaches to encourage financial wellness among their workforce. The discussion features examples from major employers and examines why these initiatives are becoming more common.

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Key Discussion Points and Insights

1. The Two-Fold Financial Dilemma Facing Workers

Timestamp: 01:35–02:51

• Problem Identified: Many Americans lack sufficient emergency savings and are not putting away enough for retirement, a trend that impacts employees at all income levels.

• Company Perspective: Employers have realized that simply offering a 401(k) isn’t enough if workers are burdened by debt and unprepared for emergencies—issues that can lead to "raiding" retirement savings prematurely.

  Quote:
  "Companies are starting to take a much more holistic look at people's finances… if people are making mistakes with the rest of their finances...they're going to come to their 401 and kind of raid it when they have emergency needs."
  — Ann Tergerson [02:51]

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2. The Impact of Early 401(k) Withdrawals

Timestamp: 03:32–04:08

• Data Highlight: Employees are withdrawing about 40 cents of every dollar contributed to their 401(k) before retirement, according to Federal Reserve and IRS data.

• Long-Term Consequence: Boston College research suggests this behavior reduces aggregate retirement savings for Americans by 25%.

• National Impact: This trend could ultimately diminish national income levels and financial security.

  Quote:
  "Retirement savings is 25% less in aggregate than it would be given the fact that people do kind of prematurely raid their 401ks."
  — Ann Tergerson [03:43]

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3. Emergency Savings Problem Spans All Incomes

Timestamp: 04:14–04:42

• Key Insight: While lower-income individuals are disproportionately affected, lack of liquid emergency savings also impacts high-income workers.

• Preparedness Gap: Even upper-income households can be unprepared for emergencies due to insufficient accessible funds.

  Quote:
  "There are definitely people who are from the upper income quintiles who also are unprepared for emergencies. They just don't have the kind of liquid savings that they need."
  — Ann Tergerson [04:21]

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4. Company Programs Encouraging Emergency Savings

a. SunTrust's Momentum on Up Initiative

Timestamp: 04:42–05:31

• Program Details: Employees receive $1,000 for completing an eight-part financial education class and consistently saving at least $20 per pay period in an emergency account.

• Expansion: SunTrust offers the program to other companies; around 200 other firms use it, though most offer smaller financial incentives.

• Incentivizing Savings: About a third of participating companies provide cash incentives to foster emergency savings.

  Quote:
  "If they meet those requirements, then the company will match their contributions…they'll just put in $1,000 after people complete those actions and courses."
  — Ann Tergerson [05:02]

  Quote:
  "It seems like a lot of employers out there are starting to very consciously try to incentivize employees to save for emergencies."
  — Ann Tergerson [05:40]

b. Prudential Retirement's Pilot Program

Timestamp: 06:00–06:42

• Program Structure: 20-company pilot where employees can set up emergency savings accounts within their 401(k) plan, using after-tax contributions.

• Employee Choice: Participation is elective, not automatic.

• Goal: Build up emergency funds to prevent employees from tapping into retirement savings during crises.

  Quote:
  "They take after-tax money and they put it into this emergency account… while they also put away another portion into the 401k. And the goal there is to help people build the emergency savings so they don’t actually use 401k money for those needs."
  — Ann Tergerson [06:09]

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5. Why Employers Care

Timestamp: 06:42–07:22

• No Direct Tax Incentive: Companies do not receive a tax break or similar financial incentive.

• Productivity and Workforce Planning: Employers believe that financially stressed workers are less productive. Helping workers achieve financial wellness improves focus and facilitates smoother retirements when needed.

• Company Benefits Include:

  • Enhanced productivity from less-distracted employees.
  • Readiness of employees to retire at appropriate times.

  Quote:
  "What employers are noticing… is that employees who have significant money problems are distracted at work. They're not as productive…They're trying to help people better manage their money in order to help them better save for retirement and be ready to retire when the company kind of wants or needs them to retire."
  — Ann Tergerson [06:47]

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Notable Quotes and Memorable Moments

• "If people are struggling to save for emergencies and pay down debt, then it's unlikely they're putting retirement money away." — J.R. Whalen [02:17]
• "A happier employee could be a more productive employee." — J.R. Whalen [07:19]

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Timestamps for Key Segments

• 01:35 – Corporate perspective on financial wellness
• 03:32 – Impact of early 401(k) withdrawals
• 04:14 – Emergency savings across income groups
• 04:42 – SunTrust and other company savings programs
• 06:00 – Prudential Retirement’s emergency account pilot
• 06:42 – Employer incentives and workplace productivity

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Conclusion

The episode spotlights how companies are evolving their benefits strategies to address the entire spectrum of employee financial health, not just retirement. By providing education and meaningful incentives, employers hope to ease financial stress, enhance productivity, and ensure that both their workers and businesses are better prepared for the future.

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Transcript

[Charles Schwab Host]

This episode is brought to you by Charles Schwab. Decisions made in Washington can affect your portfolio every day. But what policy changes should investors be watching? Washington Wise is an original podcast from Charles Schwab that unpacks the stories making news in Washington right now and how they may affect your finances and portfolio. [e-mail] WashingtonWise.

[J.R. Whalen]

Here's your Money briefing. I'm J.R. whalen at the Wall Street Journal in New York. If the company you work for gave you incentives, financial incentives to put money in a retirement or another kind of savings account, would you? In a moment, we'll tell you about companies doing just that. First, these money in market stories you should know. The 30 year fixed rate mortgage averaged 3.82% in the week of June 13th. That's unchanged from a week and it's at roughly a two year low. What's significant is that about halfway through the year, the 30 year mortgage has increased only six times. Fixed rate mortgages move in lockstep with a 10 year US treasury note, which has come down as investors grow increasingly concerned about the strength of the economy and the potential effects of a trade war. And what do bitcoin, carbon dioxide and Las Vegas have in common? Researchers at MIT and the Technical University of Munich wanted to figure out how much power is consumed by computers used to generate bitcoins and process transactions. Well, they ran the numbers and the results were in late 2018, the entire Bitcoin network was responsible for about 23 million tons of CO2 per year. That's similar to a city like Las Vegas or an entire developing country like Sri Lanka. Now, that may seem like a lot, but consider that the total global emissions of of CO2 from the burning of fossil fuels were about 37 billion tons last year. And with regard to computing power used to mine bitcoins, the Researchers said about 68% of that activity is in Asia, 17% is in Europe, and 15% is in North America. On numerous occasions, we've covered an ongoing problem in personal finance that Americans do not have enough put away in savings and are not putting aside enough money for retirement. Well, a growing number of companies are stepping in to help their employees build on savings accounts. And Wall Street Journal retirement reporter Ann Tergerson is here with some details. So, Ann, the companies are recognizing a two part problem here, that if people are struggling to save for emergencies and pay down debt, then it's unlikely they're putting retirement money away.

[Ann Tergerson]

Yeah, that's right. I think over the last couple years there's been a Lot of emphasis among corporations, corporations on what they call financial wellness for their employees. In the course of emphasizing that, I think companies are starting to take a much more holistic look at people's finances and they're realizing that just offering an attractive 401k plan doesn't necessarily solve the retirement savings problem that people are having. Because if people are making mistakes with the rest of their finances and they're maybe taking on too much debt or they're not saving for emergencies, then they're going to come to their 401 and kind of rate it when they have emergency needs.

[J.R. Whalen]

And you mentioned some significant data in your story from the Fed and the IRS that employees are withdrawing upwards of 40 cents of every dollar that goes into a 401 account before retirement.

[Ann Tergerson]

Right. And that's over time, but yes. And that can really impact people's retirement readiness. So people, on the whole, I think the finding from Boston College researchers is that retirement savings is 25% less in aggregate than it would be given the fact that people do kind of prematurely raid their 401ks.

[J.R. Whalen]

And they said that that could over time bring down the overall income of the nation.

[Ann Tergerson]

Yeah, it affects the aggregate retirement savings of Americans.

[J.R. Whalen]

And just to go back to emergency savings for a moment, it's a problem that seems to affect people across numerous income groups.

[Ann Tergerson]

Yeah, it's interesting. I mean, I think there is evidence, and I haven't delved into this too deeply, there is evidence that people who are from the lower income qu. Quintiles are disproportionately affected. But there are definitely people who are from the upper income quintiles who also are unprepared for emergencies. They just don't have the kind of liquid savings that they need.

[J.R. Whalen]

SunTrust is one company getting involved in helping employees save. What are they doing?

[Ann Tergerson]

So SunTrust has a really interesting initiative. They call it, I think they call it momentum on up. And it's something that they do with their own workforce, but they also offer it to other companies. Other companies can use it as well. So with their own employees, what they do is they offer them 1000 doll if they can complete an 8 part financial education class and also take certain actions. One of the most prominent actions that they want is for people to set up an emergency account and save $20 per pay period into that account. And if they meet those requirements, then the company will match their contributions. Actually, it's not even a match. They'll just put in $1,000 after people complete those actions and courses.

[J.R. Whalen]

Oh, there's some incentive there to do it then.

[Ann Tergerson]

I mean, it's a huge incentive. And they make that program available to other companies. There are 200 other companies using it. Now, not all of those companies offer that kind of financial incentive. Most of them are offering. About a third of them are offering a cash incentive and it's usually less than $1,000. But, you know, it seems like a lot of employers out there are starting to very consciously try to incentivize employees to save for emergencies.

[J.R. Whalen]

And you mentioned Prudential Retirement is doing something significant as well.

[Ann Tergerson]

They're a 401 record keeper. And so what they're doing is right now they have a pilot program with 20 different companies where they're setting up an emergency account sort of within the 401k. It's a little complicated, but basically they take after tax money and they put it into this emergency account. So employees have to elect to do that. It's not an automatic enrollment kind of situation. But for employees who elect to do that, they will then put away a portion of their pay in this emergency account while they also put away another portion into the 401. And the goal there is to help people build the emergency savings so they don't actually use 401k money for those needs.

[J.R. Whalen]

And what's the incentive to companies to set things like this up for their employees?

[Ann Tergerson]

There's really no, there's like no tax incentive or anything. But basically, you know, what employers are noticing or believing is that employees who have significant money problems are distracted at work. They're not as productive as they would otherwise be. So they're trying to help people better manage their money in order to help them better save for retirement and be ready to retire when the company kind of wants or needs them to retire. And they're also hoping to, you know, enhance productivity by helping people be a little less distracted at work.

[J.R. Whalen]

So a happier employee could be a more productive employee.

[Ann Tergerson]

Yeah.

[J.R. Whalen]

All right. That's Wall Street Journal retirement reporter Ann Tergeson here in our studio. Ann, thanks for coming on the show.

[Ann Tergerson]

You're welcome.

[J.R. Whalen]

And that's your money briefing. I'm JR Whalen in New York for the Wall Street Journal.

[Charles Schwab Host]

This episode is brought to you by Charles Schwab. Decisions made in Washington can affect your portfolio every day. Washington Wise from Charles Schwab is an original podcast that unpacks the stories making news in Washington. Listen @schwab.com WashingtonW.