Bipartisan Bill Boosts Emergency Savings Approach

Sens. Todd Young (R-IN) and Cory Booker (D-NJ) have introduced legislation that they say would “facilitate convenient and affordable access to workplace emergency savings accounts, improving financial security and reducing retirement savings leakage.”

According to the bill’s sponsors, the Emergency Savings Act of 2022 builds upon work by 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.

According to a factsheet describing the legislation: 

• An Emergency Savings Account is an optional feature that can be added to a plan sponsor’s defined contribution plan.
• The maximum that can be saved in an Emergency Savings Account is $2,500, however plan sponsors may choose to set a lower cap.
• The savings in an Emergency Savings Account will be made on an after-tax basis and can be withdrawn tax penalty-free at any time (with permissible limitations on withdrawal frequency).
• Contributions to the Emergency Savings Account will be treated as elective deferrals for purposes of retirement matching contributions, with an annual matching cap set at the maximum Emergency Savings Account balance—i.e., $2,500 or lower as set by the plan sponsor.
• Plan sponsors may use automatic enrollment at up to 3% of a participant’s salary to increase participation in the Emergency Savings Account. 
• Employees can opt -out or adjust their contribution at any time.
• To preserve their retirement savings, participants may take their Emergency Savings Account as cash, roll it into their Roth defined contribution plan, or roll it into a Roth IRA at separation from service.

Brian Graff, CEO of the American Retirement Association, commented: “The American Retirement Association has not yet endorsed the proposal as currently drafted due to concerns employers who would like to add a side-car emergency savings account would be required to match those savings at the same rate as traditional 401(k) contributions, yet unlike 401(k) contributions, those emergency savings could be withdrawn at any time without restriction—effectively. We have, and will continue to, raise this particular concern as the process moves forward.”