Automatic emergency savings plans are a popular conceptpar Andrew Rickard | December 07 2016 09:56AM
More than half of employers and employees say they would like a way to set aside emergency savings automatically.
A recent survey conducted by the LIMRA Secure Retirement Institute shows that 66% of employees and 89% of employers are interested in having an automatic emergency savings account that works alongside their workplace defined contribution (DC) plan.
The study was inspired by research conducted by Harvard University professor David Laibson, who has argued in favour of an automatic emergency savings account that is funded up to a specific amount, after which point the money is redirected into a retirement savings plan. By encouraging emergency savings at work, Laibson believes companies could prevent early withdrawals of retirement funds, which can come with penalties and threaten long-term retirement security.
"Many Americans struggle to save for both their short and long-term needs," says LIMRA. "The Federal Reserve found that nearly half of American households did not have enough money to cover a $400 emergency. In these instances, Americans often turn to their workplace retirement accounts to cover these expenses."
The study is based on a September 2016 survey of 801 workers with access to a DC plan through their current employer and an October 2016 survey of 1,095 DC plan sponsors with 10 or more employees.