‘Rainy-day savings arrangements at the workplace could help attract and retain valuable employees’
Automatically enrolling workers into an employer-sponsored payroll deduction rainy-day or emergency savings account could be a cost-effective means of helping people accumulate liquid savings to meet urgent pre-retirement expenditure needs, according to a new study.
This is true regardless of whether the employer offers some form of workplace retirement savings plan, especially because roughly half of Americans live paycheck to paycheck with no liquid assets to tap into should financial shocks occur during their working life, says the U.S. study Building Emergency Savings Through Employer-Sponsored Rainy-Day Savings Accounts.
“The evidence suggests a real need for short-term savings. Therefore, rainy-day savings arrangements at the workplace could help attract and retain valuable employees,” say the researchers from Harvard Business School, the Yale School of Management, the Brookings Institution, Wharton School, AARP, Harvard University and Brigham Young University and the National Bureau of Economic Research.
“Ideally, rainy-day accounts would allow for automatic enrolment, be easy for employees to understand and use, have tax advantages similar to those available to retirement savings, admit administratively simple employer matching, and avoid concerns about employer liability or undue administrative cost.”
However, most employers will not immediately jump at the chance to offer these accounts to employees, say the researchers, citing for example the cost, administrative burdens or concern about litigation risks.
“But concerns such as these have not dissuaded hundreds of thousands of plan sponsors from choosing to sponsor retirement savings plans to compete effectively in the labour market and promote greater workplace productivity by addressing workers’ needs.”