A new nationwide survey reveals that a large majority of employees would participate in an automatic payroll deduction emergency savings program if one were offered by their employer.
Warren Cormier, CEO of the Boston Research Technologies and Executive Director of DCIIA’s Retirement Research Center, presented results Sept. 20 from the survey showing that more than 7 in 10 employees (71%) would likely participate in a payroll-deduction rainy day savings program if their employer offered one.
Commissioned by AARP’s Public Policy Institute and designed by Boston Research Technologies, the survey also shows the top reasons employees would participate are to save more and reduce financial stress, cited by 18% and 16% of respondents, respectively. Conversely, the most common reason for not participating is that employees say they already save on their own (26%), followed by they “would do it themselves” (21%) or that it was “not needed/wanted” (20%).
The results were unveiled at a Sept. 20 AARP Public Policy Institute’s Solutions Forum in Washington, D.C. Debra Whitman, Executive Vice President and AARP Chief Public Policy Officer, opened the forum by citing Federal Reserve data that 4 in 10 American households could not come up with $400 in a financial emergency.
With employers increasingly incorporating financial wellness programs into their benefit offerings, Cormier explained that the survey sought to test the appeal of a payroll-deduction savings program among employees. The idea is that employer-based solutions can better leverage the principles of behavioral economics and the convenience of payroll technology. Among the survey objectives were understanding the characteristics and motivations of employees who are likely to participate, as well as program design features likely to generate the widest participation.
Demographic Non-factor
Interestingly, Cormier noted that financial stress and trust in the employer were stronger drivers of employees’ participation in an emergency savings program compared to demographic factors like income, age or gender. According to the results, employees more likely to participate include those:
- with higher levels of self-reported stress about their finances;
- with lower balances in non-retirement accounts;
- who have greater trust in their employer; and
- who consider paying for an unexpected expense to be a major problem.
Women were only slightly more likely than men to say they would be likely to enroll in an emergency savings program. Hispanic employees are slightly more likely than non-Hispanic white employees to participate. Household income level was found to have no significant effect on the likelihood to participate.
Employer Match
Nearly all employees would participate in the program if their employer matched their account contributions, the survey found. Cormier noted that this finding is consistent with DC plan data, where you see lower participation in plans without a match.
According to the study, 87% of employees say they are more likely to participate if there is an employer match. This percentage reaches 85% even for those who previously said they were unlikely to enroll in the proposed benefit.
The study further shows that employees would have strong preferences for the ability to:
- access their money immediately;
- keep the account in case of a job change;
- change or stop contributions at any time; and
- maintain their privacy.
Panel Discussion
As for the business case for such a program, panelists Greta Engle, Vice President Employee Benefits, USI Insurance Services; David Newville, Director of Federal Policy, Prosperity Now; and Will Sandbrook, Executive Director, NEST Insight, generally praised the idea and supporting research, noting that helping employees improve their savings level and reduce stress may help with improving productivity levels. But panelists also cautioned that the “devil is in the details” and that “there is no silver bullet,” warning that such a program may not necessarily be appropriate for every employer.
“The great thing about this data is that it shows that there’s a definite interest out there, which is good to appeal to employers, but how do you fit this into broader financial wellness initiatives,” Newville remarked. “Employers already have a lot on their plate and how do you successfully deploy this [program] so that it will not only encourage people to adopt and successfully use it, but then will you see that impact on productivity… Can you ultimately trace that back to the bottom line?” he inquired.
Newville noted that Prudential is rolling out an emergency savings program to its clients and that he hopes to see the firm’s data to determine whether their program works.
Panelists also cautioned that employers will have to be cognizant of ERISA and applicable fiduciary rules in relation to offering a program. “Once you take that money out of their check, you then have a fiduciary responsibility to consider,” Engle explained. She further noted that one positive aspect may be that when an employer performs a communications strategy about a program, the ERISA disclosure rules may then come into play, which at least allows one clean set of rules to follow, instead of a state patchwork of rules.
Another concern Engle said she hears often is that not all employees have bank accounts or the employer is in a high-turnover industry, which can lead to bigger problems for employers than it’s worth.
Panelists also questioned whether such a program would “cannibalize” retirement savings. Newville said that he doesn’t believe it means that individuals will save less, but suggested that the issue needs to be studied very carefully in determining how it interacts with a DC plan.
This study comes as Congress is poised to consider legislation creating so-called Universal Savings Accounts that would permit individuals to make annual contributions up to $2,500 that could be withdrawn at any time for any reason without tax penalties.
The survey, which is designed to be representative of the U.S. population, includes the responses of 2,603 adults ages 25-64 who were employed (but not self-employed), paid by direct deposit, and expect to remain with their current employer for at least one more year.
