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Automated Emergency Savings Funds: Why Retirement Plan Sponsors Should Consider Offering Them

Technology that automates after-tax savings has come a long way. From rounding up all purchases and saving the difference, saving when a raise is received, to monitoring spending patterns and automatically saving more when there is more money in an individual’s checking account(s), there are far more options to save than simply deducting dollars from an account each month. And, for someone who has signed up for a more than one of these programs in the last few years, I can attest that they are highly effective in building savings for emergencies or other purposes.

So why don’t we see this as a more common employee benefit offering? It certainly addresses an employee need, as studies have shown that many employees lack sufficient emergency savings. And, for retirement plan sponsors, it costs nothing while offering the following benefits:

  • Individuals with emergency funds are far more likely to use those funds in an emergency instead of borrowing/withdrawing from their retirement plan, reducing plan leakage
  • Individuals with emergency funds are in a better financial position to save into the retirement plan
  • The automation for retirement plan savings and after-tax savings is similar; thus, participants who are acclimated to one process are more likely to participate in both

Some retirement plan recordkeepers have seen the synergy of offering automated after-tax savings as well and have begun to roll out these products as and add-on offering. Of course, plan sponsors should shop around and obtain the best deal for their participants, which may or may not be their recordkeeper’s offering.

Can you think of a reason for a retirement plan sponsor NOT to offer an automated after-tax savings option? I would love to hear from you on LinkedIn, Twitter or at!

Note: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice. Opinions expressed are those of the author, and do not necessarily represent the opinions of Cammack Retirement Group.

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