Payroll, Retirement and Policy: Three Ways Employers Can Impact Worker Financial Security
Emergency savings is crucial for building financial security, but millions of people lack access to the proven tools for building such a safety net. Our research has shown that individuals with emergency savings are less likely to accumulate debt, prematurely tap retirement savings, or take actions that jeopardize their financial futures. Employers play a crucial role in facilitating emergency savings, particularly for workers earning low to moderate incomes (LMI) – a role that extends far beyond providing a paycheck.
Advancing worker financial security through increased savings is good for employees and good for business. Employees believe that employers should play a leading role in this space; providing emergency savings that meet employee savings news can help improve productivity and retention. Employers can facilitate emergency savings through three pathways: payroll, retirement plan, and policy. In each case, they play a significant, proven role in creating systemic financial change for workers earning LMI.
Payroll
Payroll presents a powerful opportunity to provide workers with access to tools and opportunities to save. Whether by direct deposit or by reloadable debit cards, the payroll process is a regular opportunity for employees to build savings—and a regular touchpoint that employers have with their employees’ finances. Forward-thinking employers are pairing savings vehicles that meet the needs of employees earning LMI with effective messaging that raises awareness of the savings options available to the worker. Moreover, they’re uncovering effective savings vehicles that are often already embedded in their payroll process and increasing access and uptake to those tools among employees.
Retirement
Emergency savings solutions have emerged as a way to build foundational financial security. Early research has shown it to be a predictor of increasing savings and, ultimately, building wealth for workers earning LMI. What’s more, a lack of emergency savings ultimately hinders workers’ retirement plan participation. Plan sponsors and recordkeepers are uniquely positioned to offer high quality emergency savings solutions that employees earning LMI are interested in and that can improve their financial wellbeing.
Policy
Strong policy can enable employers to offer better and more tailored workplace savings plans that ultimately lead to systemic financial change. We can look to retirement policy as an example: when the U.S. standardized auto-enrollment as a feature of 401(k) plans, enrollment nearly doubled. Policy providing similar allowances for employer sponsored emergency savings plans could have a tremendous impact on participation rates—and would better meet the needs of workers learning LMI. Employers can continue to advocate for workplace policies around emergency savings that are inclusive and effective.