Today, Senators Todd Young (R-Ind.) and Cory Booker (D-N.J.) introduced the Emergency Savings Act of 2022 to help Americans save for unexpected expenses without having to tap into their retirement accounts. The bill would facilitate convenient and affordable access to workplace emergency savings accounts, improving financial security and reducing retirement savings leakage.
According to a report by the Federal Reserve, almost half of Americans would struggle to cover an unexpected $400 expense. A recent study found that, in the past year, almost 60 percent of retirement account participants who lack emergency savings tapped into their long-term retirement savings, compared to only nine percent of those who had at least a month of emergency savings on hand.
The Emergency Savings Account Act of 2022 builds upon work by Senators Young and Booker to develop this concept over the last several years, including the Strengthening Financial Security Through Short-Term Savings Accounts Act of 2021.
“We can’t always predict the future, and too many Hoosier families encounter situations where they struggle to cover unexpected expenses through no fault of their own. Unfortunately, this can cause families to dip into their retirement savings, which harms their financial future. Our bipartisan bill would help families create stable emergency savings for unforeseen expenses, while keeping retirement accounts intact for the future,” said Senator Young.
“We know that many Americans are struggling to make ends meet, and that even a small, unexpected expense or emergency can send families into a financial spiral that puts them even further behind. At the same time, for many of these workers, retirement is becoming out of reach,” said Senator Booker. “I’m proud to work with Senator Young to address these savings crises by creating opportunities for workers to build savings for short-term, unexpected costs while also putting them on a pathway for a more financially secure retirement. Building on our past work, this bill will allow employers to offer workplace savings accounts that will make it easier to save, promote financial stability, and help workers build their retirement funds.”
Separating emergency savings from one’s retirement savings account will provide participants a better understanding that one account is for short-term emergency needs and the other is for long-term retirement savings, thus empowering employees to handle unexpected financial shocks without jeopardizing their long-term financial security in retirement through emergency hardship withdrawals.
What they are saying about the Emergency Savings Act of 2022:
Jason Fichtner, Vice President and Chief Economist of the Bipartisan Policy Center said, “Employers have a vested interest in improving their workers’ financial resiliency. Near the top of the list should be helping workers better respond to unplanned expenses so that they can avoid prematurely raiding their retirement savings or pursuing high-cost credit alternatives. Legislation that would make it easier for employers to offer employees automatic, short-term savings vehicles in a manner similar to their 401(k)s is a positive step forward.”
Lynn Dudley, Senior Vice President of Global Retirement and Compensation Policy for the American Benefits Council said, “[T]hank you [Senators Booker and Young] for your leadership with respect to emergency savings and the introduction of the Emergency Savings Act of 2022. This bill reflects your commitment to good bipartisan retirement policy and responds to a critical need for financial protection in cases of unexpected expenses that often present real challenges for many American workers and their families.”
Andrew Banducci, Senior Vice President of the Retirement and Compensation Policy with the ERISA Industry Committee said, “The ERISA Industry Committee (ERIC) applauds the introduction of the Emergency Savings Act of 2022 and your leadership in addressing critical retirement and savings needs. On behalf of our large employer membership, we look forward to working with you to promote retirement security, emergency savings, and holistic financial wellness for employees, retirees, and their families.”
Chantel Sheaks, Vice President, Retirement Policy for the U.S. Chamber of Commerce said, “The fact that nearly 50 percent of Americans would have difficulty paying for a $400 emergency shows that something must be done to help Americans with emergencies savings. Employers recognize the stress that this can cause for their employees, and that is why the U.S. Chamber of Commerce supports the Senate’s efforts to come up with emergency savings solutions, including side car accounts to a 401(k) plan which is in the ‘Emergency Savings Act of 2022’. . . . Given the diversity of the American workforce, employers will need as many options as possible to help alleviate this stress on workers.”
Andrew Lautz, Director of Federal Policy for the National Taxpayers Union said, “Too many Americans are left unprepared when facing a wide variety of expensive emergencies. The Emergency Savings Act from Senators Young and Booker would take a meaningful and thoughtful step in addressing this issue. The bill would allow employers to offer an emergency savings account option to their employees, and would incentivize workers to save up to $2,500 into those accounts with the possibility of an employer match into retirement savings. NTU encourages Congress to support the Emergency Savings Act, and we ask lawmakers to continue building on this effort with additional solutions that unleash the ability of employers, workers, and the entire financial sector to provide for emergency savings.”
Susan K. Neely, President and Chief Executive Officer of American Council of Life Insurers said, “ACLI applauds your commitment toward solutions to help the many American families that lack short-term emergency savings. The Emergency Savings Act of 2022 seeks to address this critical savings need. . . . Thank you for your leadership and bipartisanship on The Emergency Savings Act of 2022. We look forward to our continued collaboration on helping American families address emergency savings.”
Andrew Biggs, Senior Fellow of American Enterprise Institute said, “Establishing rainy-day savings not only helps stabilize household finances against unexpected expenses, but in doing so also protects retirement savings from being drawn down to cover these costs. Automatic enrollment in an emergency savings account is the easiest way to provide these protections.”
Doug Ryan, Vice President of Prosperity Now said, “A longstanding component of our work has been emergency savings programs to help families weather income loss and unexpected expenses. We are writing today to express our support for the Emergency Savings Act of 2022, which the Committee will begin considering soon. We support the bill’s passage.”
Eric Stevenson, President of Nationwide Retirement Solutions said, “Nationwide believes this legislation will give plan sponsors a useful tool to help retirement savers prepare for both long-term and short-term savings needs. . . . Your legislation provides employers with the opportunity to encourage saving for an emergency, alongside saving for retirement – all within a system that the plan participants know and trust.”