Leveraging Secure 2.0 for greater employee financial well-being

At first glance, Secure 2.0 has something for everyone.

In fact, the sweeping law with a series of retirement benefits passed late last year gives employers new opportunities to improve their employee benefit offerings, especially those that encourage emergency savings, linking 401(k) plan-matching contributions to student loan repayments. for employees, and encouraging participation in the general pension plan. For employers interested in helping employees improve their financial well-being, these facilities can be an attractive starting point for establishing a new financial well-being program or enhancing an existing one.

Emergency savings accounts

In particular, the impact of the emergency savings account law could become an important addition to financial well-being efforts.

“Emergency savings really are the cornerstone of a financial wellness program,” said Holly Verdeyen, US defined contribution leader at consulting firm Mercer. “These plans could be particularly attractive to employers with a large proportion of employees living paycheck to paycheck.”

The reason is simple. A successful emergency savings account can ensure that employees have access to cash when they need it without resorting to more expensive solutions, such as high-interest payday loans or a 401(k) plan loan. “With emergency savings, even a small dollar investment can have a big impact,” Verdeyen said. Some companies may add an incentive or match to increase emergency savings.

Get started now

Not all employers wait to implement changes to the Secure 2.0 provisions. Farmington Country Club in Charlottesville, Virginia, recently launched an emergency savings car for its approximately 350 year-round employees.

“Offering an emergency savings account is something we’ve wanted to do for a while,” said Carla Hallman, SHRM-SCP, the club’s HR manager. “We knew that Secure 2.0 was coming, so starting the emergency savings program seemed like a no-brainer” that would have helped the employees a lot.

For example, two of the organization’s goals for the emergency savings plan are to reduce the number of 401(k) plan loans employees take out and to help employees manage their finances by setting aside something for unexpected expenses. Hallman refers to the emergency savings option as “incremental help that’s ‘set and forget'” for employees trying to better manage their financial lives.

By saving $10 to $15 per paycheck, employees can build their emergency savings account balance over time, while knowing they can access that money at any time, for any reason. The program currently offers a match at 5 percent of salaried employee contributions and 10 percent of hourly employee contributions, up to $100 per year for both groups. Once Secure 2.0 features, such as auto-enrollment, become available, the company can easily adjust the plan if necessary.

Overcome skepticism

As Hallman learned, it’s not enough just to offer a program designed to help employees better manage their financial lives. Employers should be prepared for employee skepticism about participation.

“It took a little persuasion at first” to get people to sign up, she said. “People wanted to know, ‘What’s the catch?’ ” she said. “It’s important to meet employees where they are and explain how emergency savings are helping them,” she said.

This situation is not uncommon, according to Sid Pailla, CEO of Sunny Day Fund, an emergency savings vehicle. In general, employers will encounter three groups of employees when rolling out an emergency savings plan: the early adopters who are immediately interested; those who know emergency savings accounts are important but opt ​​out due to other financial priorities; and those who think they don’t need to save for emergencies.

It is this last group that requires the most attention. “Employers can focus on automation in enrollment and contributions for this group,” said Pailla. “Perhaps they should also be rewarded for their behavior through employer contributions or a competition.”

Combining emergency savings with help repaying student loans could lead to increased retirement plan participation as employees feel more comfortable putting money aside for a long-term goal, such as retirement.

By deliberately targeting underserved populations, employers can see an initial 30 percent enrollment grow to 50 percent after a few months as more people become aware of the program.

“Don’t forget the social aspect of this,” Pailla said. “People who contribute to emergency savings accounts and any incentives will talk about it with their peers,” lending credibility to the program.

‘Starter K’ plans

Implementing emergency savings accounts and other Secure 2.0 features will benefit those employees who need help the most. For example, the law allows employers who have never sponsored a retirement plan to set up a simplified 401(k)a “Starter K” plan. Under this new plan, employers are not required to contribute and employees are automatically enrolled with contributions of 3 percent of their pay.

“The Starter K is going to be a great option for a small business that can’t afford the administrative complexity and heftier price tag of a regular 401(k) but still wants to give employees the opportunity to save for retirement,” said Nicolle Willson , director of retirement consulting at pension plan platform Guideline.

This can be a particularly attractive option for employers operating in states where employers are required to offer some type of retirement plan to their employees. “The Starter K could be a great private alternative to the potentially somewhat clunky State IRA options,” she said.

Employers can also enhance their diversity, equality, and inclusion (DE&I) efforts by implementing a Starter K plan. Research conducted by the American Retirement Association estimates that the Starter K plan for smaller employers could help an additional 19 million workers save for retirement, with black and Hispanic workers seeing a 22 percent increase in access to workplace retirement plans .

When it comes to student loan debt, “women and members of the black and LGBTQ communities are most negatively impacted, so the addition of both student loan and 529 benefits [in Secure 2.0] can strengthen an employer’s DEI efforts” and help reduce employee stress, said Patricia Roberts, author of Route 529: A Parents Guide to Saving for School and Career Training with 529 Plans (Publisher Button House, 2020) and chief operating officer of Gift of College Inc.

Choose the features that meet your talent goals

How employers use the provisions in Secure 2.0 depends on what they want their financial wellness plans to accomplish, experts say. For example, offering 401(k) plan contributions tied to student loan repayments will depend on whether this approach will help employers attract and retain their ideal talent.

“Help paying back student loans can be a good thing for a certain type of employer,” says Verdeyen. These employers include those with a large number or percentage of younger employees who may not be able to contribute to a retirement plan due to student loan repayment obligations. As a result, these employers may see lower-than-expected 401(k) plan participation rates.

Looking forward

As Secure 2.0 provisions take effect in the coming years, employers can expect to see more vendors enter the market with solutions that include resources to educate employees about these programs and financial wellness as a whole. The resulting choices can help employers encourage and support their employees toward greater financial well-being.