Emergency Savings Accounts (ESAs): How New Legislation Can Help Employers Attract and Retain Employees
By: Kevin O’Toole , Consultant- Health & Employee Benefits
It is no secret that we are in the midst of turbulent economic times. Inflation, rising interest rates, and market volatility are currently affecting how Americans save for emergencies. According to a recent survey from Bankrate, 2 in every 3 Americans are worried about having enough emergency savings to cover a month’s worth of living expenses should they lose their job. In fact, 25% of respondents indicated they would need to incur credit card debt to cover a $1,000 emergency expense. Under this level of financial stress, many workers are either looking for a new position with a higher wage or picking up a side-hustle to make ends meet. In today’s world, how can employers attract and retain employees, their most valuable assets?
Understanding Secure 2.0
Enter Secure 2.0. This bill, passed in 2022, largely deals with retirement savings. However, one facet of the broader piece of legislation could provide financial relief for employees sooner rather than later. Secure 2.0 allows for the establishment of employer-funded Emergency Savings Accounts (ESAs). For plan years beginning on or after January 1, 2024, employers can set up ESAs for their non-highly compensated employees, which may help to attract and retain employees.
What Should HR Leaders and Executives Know About ESAs?
While there is still some ambiguity surrounding the implementation of these plans, there are some key facts about ESAs that HR leaders and executives should be aware of:
- Employers who maintain profit sharing, 401(k), 403(b), or governmental 457(b) plans can set up ESAs.
- ESAs may only be funded with Roth-like (post-tax) payroll deduction contributions and can be supplemented by an employer match.
- The ESA contribution balance limit may not exceed $2,500 (adjusted for inflation). Employees must be able to withdraw from the account monthly and incur no fees or charges on the first four withdrawals each year.
- Funds must be held as cash in an interest-bearing deposit account or in specified investment products.
How Can an ESA Program Help Attract and Retain Employees?
While the benefits of an ESA program for employees are evident, employers are positioned to reap rewards from the program as well. ESAs can be a tool employers use to help ease financial stress for employees, leading to higher productivity and lower turnover. Additionally, an ESA program could help employees avoid pulling money out of their retirement plans in the case of an emergency, leading to healthier plans for the employer. The implementation of an ESA program is often a win-win, and it may be a crucial solution to attract and retain employees in the wake of the “Great Resignation” that has hit many businesses.
Make It Easier to Attract and Retain Employees with TriBridge Partners
At TriBridge Partners, we are committed to keeping our clients on the cutting edge of employee benefits. To discover how our experts can assist your organization or business, please call our office today at 240-422-8799, email Jessica Storck at Jessica.storck@tribridgepartners.com, or find us on LinkedIn
