Why More Employers Are Prioritizing Emergency Savings Over 401(k)s

Workplace benefits are evolving fast. According to the latest survey from the Employee Benefit Research Institute (EBRI), 77% of employers plan to introduce emergency savings programs within the next two years. This signals a significant shift toward prioritizing employee financial wellness—a move long overdue.

But why now? Rising living costs, financial stress, and skyrocketing healthcare expenses have left employees more financially vulnerable than ever. Programs like SECURE 2.0 have also paved the way for integrating emergency savings into workplace benefits, making these initiatives both practical and accessible for employers.

Let’s dive into why these programs are gaining traction and how organizations can implement them effectively.

Why Financial Wellness Matters More Than Ever

Financial stress isn’t just a personal problem—it’s a workplace issue. With inflation still squeezing household budgets, employees are struggling to handle unexpected expenses. According to Bankrate’s 2024 Annual Emergency Savings Report, only 44% of U.S. adults can cover a $1,000 emergency expense without borrowing. The rest are forced to dip into credit cards, payday loans, or worse—raid their 401(k)s.

Ted Benna, the father of the 401(k), has long been vocal about the pitfalls of relying solely on retirement accounts for financial security. He initially designed the 401(k) to be a wealth-building tool, but today, he acknowledges that it’s not the right fit for middle- and low-income earners facing short-term financial stress. Employees need liquid, accessible savings options that won’t jeopardize their long-term financial health.

Employers are catching on. Financially stressed employees are more likely to be disengaged, absent, or even leave for higher-paying jobs. That’s why 83% of companies say their financial wellness programs have improved employee morale and retention.

SECURE 2.0 is also a game-changer. By allowing penalty-free emergency withdrawals from 401(k) accounts, it gives employees a short-term financial lifeline. But as Benna has pointed out, tapping into retirement funds for emergencies is not a sustainable solution. Employers need to go further—offering dedicated emergency savings options that don’t put long-term wealth at risk.

What Emergency Savings Programs Look Like

The 2024 EBRI survey highlights how employers are rethinking financial wellness. Beyond retirement plans, they’re focusing on programs that help employees build short-term savings and manage unexpected expenses.

One of the most promising solutions? Emergency Savings Accounts (ESAs) that exist outside of 401(k) plans. These accounts provide immediate access to funds without the penalties and tax implications of a retirement withdrawal. They also offer a structured way for employees to save through automatic payroll deductions—just like a 401(k), but for emergencies.

Lessons From Early Adopters

Companies leading the way in emergency savings programs have learned a few key lessons:

• Clear Communication Is Key – Employees are more likely to participate when they fully understand the benefits. The best-performing companies use emails, webinars, and one-on-one financial counseling to drive engagement.
• Incentives Matter – Employers that match contributions or offer bonuses for participation see significantly higher engagement rates. This approach sends a clear message: the company is invested in its employees’ financial health.
• Integration Drives Success – Emergency savings programs work best when they complement other benefits. Companies that align them with existing financial wellness initiatives—like budgeting tools or student loan assistance—see the most substantial impact.

How to Implement an Emergency Savings Program

Thinking about launching an ESA program? Here’s how to do it right:

• Assess Employee Needs: Conduct surveys or focus groups to understand financial challenges and tailor your approach accordingly.
• Choose the Right Structure: Decide whether your program will be standalone, integrated into existing benefits, or part of a hybrid model.
• Start with a Pilot Program: Test the program with a small group before scaling up.
• Prioritize Employee Education: Use multiple communication channels to ensure employees understand and engage with the program.
• Measure and Adjust: Track participation rates, withdrawal patterns, and employee feedback to refine the initiative over time.

Measuring Success

To gauge effectiveness, focus on key metrics:

• Participation Rates – A higher enrollment percentage indicates effective communication and program design.
• Contribution Growth – If employees are consistently saving, it’s a sign of growing engagement.
• Reduced Financial Stress – Employee surveys can reveal improvements in financial well-being and workplace satisfaction.
• Retention and Productivity Gains – Lower turnover and absenteeism can provide a strong business case for ongoing investment in financial wellness.

The Road Ahead

Emergency savings programs aren’t just a trend—they’re becoming a fundamental part of modern workplace benefits. Employers that take action now will not only strengthen their workforce but also build a more financially resilient company culture.

Ted Benna’s insights remind us that financial security isn’t just about retirement—it’s about stability throughout life. By providing better savings solutions today, employers can help workers build a stronger financial future without jeopardizing their long-term goals.

It’s time for businesses to step up and make financial wellness a priority. The future of work depends on it.