How Record Keepers Can Address Emergency Savings

Employees needed emergency savings long before COVID-19, but the pandemic has underscored the detrimental impact that financial insecurity can have on employee performance and retirement readiness. The CARES Act addresses the need for savings to cover an emergency by allowing retirement plan participants to make penalty-free withdrawals from their retirement accounts to cover their short-term needs. While this may be a necessary option for employees, the legislation reveals a lack of accessible, short-term savings options that would allow employees to cover their emergencies without sacrificing their long-term finances.

Record keepers and plan sponsors can help employees keep their retirement contributions where they belong by offering them emergency savings products in-plan (through after-tax contributions) or out-of-plan (through a partnership with a financial institution that provides a liquid savings account). Commonwealth works with record keepers to develop these features in defined contribution accounts. Offering emergency savings through retirement accounts can help decrease hardship withdrawals while meeting the demand for more financial wellness features on record keeper platforms.

This webinar, held on July 16, 2020 by Commonwealth and BlackRock's Emergency Savings Initiative, discussed the urgent need for employer-offered short-term savings solutions, the role record keepers are starting to play, and models for how record keepers can take action.