8 design best practices employers should apply to savings features

Beyond holistic care, the design of employers' programs is also important in maximizing effectiveness, whether employers offer savings accounts inside or outside their retirement plans. Below are eight best practices to keep in mind whether employers are using a holistic financial wellness program or a dedicated solution for emergency savings.

Low- to zero-friction onboarding. To achieve mass participation, it is critical to make it as easy as possible for employees to start saving. When it comes to workplace savings, automatic enrollment or embedding enrollment into existing processes like new hire onboarding or annual open enrollment are great approaches.
Payroll deduction for automatic saving. Behavioral finance research has shown that "set it and forget it" is the most effective way to maintain a savings plan. But automatic recurring ACH transfers from bank accounts to savings — popular among higher earners — are not suitable for employees who lack emergency savings and are at higher risk for large overdraft fees. Some newer solutions have attempted to use technology or guarantees to avoid overdrafts, but the technology that supports this approach is still limited by legacy U.S. bank data and payments infrastructure, and the Consumer Financial Protection Bureau has recently cracked down on this approach.
FDIC-insured deposits. When faced with unfamiliar investment options, employees may worry they'll make a mistake and decide to opt out. So for a financially stressed household, FDIC-insured deposits (for example, traditional bank savings accounts) are the gold standard for trust. Easy to understand and with a government guarantee that money will be there when needed, FDIC-insured accounts are particularly relevant with worrying headlines about the crypto market crash and speculation about the "next financial crisis."
Appropriately conservative options. Emergencies don't give notice. As such, emergency savings solutions should prioritize security and liquidity over return. FDIC-insured deposits are the simplest way to help meet this need for employees, but at a minimum, guardrails should be in place that prevent employees from putting their rainy day fund into risky, volatile assets. Look closely at what providers offer — some accounts are marketed as workplace emergency funds without these protections.
Quick, free access to money. For higher income employees, waiting a few days or even a week for access to funds is often only a mild irritation thanks to cushion in spending accounts for everyday needs or temporary sources of cash like credit cards or family. But for the most financially stressed employees, accessing funds quickly could mean the difference between being able to buy the gas to get to work that day, refill an important prescription, or keep the lights on. It pays to look at the fine print — what will the typical wait times be for your employees on withdrawals? What kinds of fees might they be charged (e.g., to access funds more quickly)? Do they have to request funds by phone or only during specific times? SECURE 2.0 does not have stringent requirements on the timeliness or accessibility of employees' funds, but employers should keep this in mind in their program designs so as to fully realize the benefits emergency savings should provide.
A way to access money without using costly services like check-cashing. Five percent of the country still doesn't have a bank account, and that number grows to 11% for African American households and 9% for Hispanic households. To overcome this barrier, employees need a fee-free way to access money from their savings account. For example, a program could provide unbanked employees with a debit card account that they can use to withdraw their savings and spend their funds.
No temptation to spend. The ideal savings program lets employees access their money quickly and uses "nudges" to discourage them from raiding savings for impulse spending. But some workplace savings programs do the opposite by replicating the look and feel of checking accounts. And while debit cards can be a great tool to provide the unbanked access to their emergency savings, debit cards also run the risk of inadvertently sending the signal that it's okay to spend emergency savings when it's not a true emergency – an important component to consider in designing a program.
Flexibility to save enough for personal needs. A common rule of thumb is to have three to six month's expenses saved for emergencies, but for those with near-term upcoming needs like medical leave or a wedding, more is needed. SECURE 2.0 savings accounts will be capped at $2,500, much below what many employees need for savings, so employers should also consider pairing the account with other savings options or more general purpose savings solutions.

Savings programs have great potential to improve Americans' financial health. But in order to meet that potential, proper workplace adoption and implementation is needed. Not only is this important to employees, it can also serve as an important boost to companies' ROI – particularly if combined with a holistic financial wellness strategy. With the link between financial health and productivity, retention, and more, driving increased emergency savings is a win-win for both employees and employers.

Instant Insights /

SECURE 2.0 links emergency savings to retirement plans: 8 best practices

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