"We discovered that households with spending spikes generally have a precarious financial profile," the report's authors said. "Compared with households with no spending spikes, they have lower income, higher levels of credit card debt and a greater likelihood of taking out a 401(k) loan. We were surprised by the magnitude of the difference in retirement readiness between these households and those with stronger financial profiles."

When households face an unfunded spending spike, the report shows that they first increase their credit card debt and then turn to a 401(k) loan. Of those who faced an unfunded spending spike, 17% took a 401(k) loan while only 7% of those without a spending spike took a loan.

In addition, higher use of credit cards tends to mean lower savings rates and balances in 401(k) plans. For plan participants with tenures of more than 15 years, incomes between $75,000 and $100,000 and a credit card ratio of 0%, the median 401(k) account balance is $184,000. For those with the same profile but credit card ratios of between 80 and 100%, the median account balance is just $80,000.

"In other words, the 401(k) account balances of participants with more prudent credit card utilization were more than two times larger than those of their debt-burdened counterparts," the report said.

The report said the research should resonate with plan sponsors as they consider the links between financial wellness and retirement readiness, noting "the research reaffirms the importance of focusing on actual participant behaviors and the potential for cash flow volatility in defined contribution plans."

In addition, the report said, "Emergency savings is a necessity for everyone. Households without an adequate cash buffer take on debt, become financially more vulnerable and find themselves at risk of not achieving a successful retirement outcome."

"The availability of emergency savings to cover spending spikes is a critical factor in preventing or stalling a cycle of increasing debt that can significantly impact retirement readiness," said Craig Copeland, Ph.D., director, wealth benefits research, EBRI.

Related: One dip into a 401(k) plan often leads to another: Clamping down on repeat borrowing

SECURE 2.0, the 2022 federal legislation designed to increase Americans' retirement savings, allows plan sponsors to offer an emergency savings account inside of a 401(k) plan with a maximum account balance of $2,500 for non-highly compensated employees. The report's authors said that an in-plan emergency savings account will encourage more employees to set money aside for unanticipated expenses, especially if it is paired with automatic enrollment.

"We recommend that plan sponsors discuss with plan advisors and administrators the pros and cons of such an in-plan offering," the report said. "But no one can reasonably debate the need for emergency savings. At a minimum, we think plan sponsors should consider offering employee education on the subject."

Because the report shows that 401(k) participants who take a loan from their account are also likely contending with credit card debt, plan sponsors should be prepared to provide help in that area.

"When a participant borrows from a 401(k), it can be a powerful signal to plan sponsors that offer financial wellness programs to engage on credit card debt management," the report said. "Advice and education will be most relevant when that struggle is ongoing."

The report's authors said that plan sponsors must recognize and manage the impact of cash flow volatility within a plan.

"The report makes it clear that plan sponsors need to take into account participant behavior and spending volatility when designing their Qualified Default Investment Alternative (QDIA) offering," said Sharon Carson, retirement strategist at J.P. Morgan Asset Management. "The research also highlights the importance of sponsors keeping in mind that 'leakage' from plan accounts through 401(k) loans and withdrawals can have outsized effects on retirement readiness."