Emergency Savings Accounts

October 25, 2023 |
Article | 3 min
| Personal Insights

Plan Sponsors May Offer Emergency Savings Accounts to Employees Starting Next Year

Emergency savings accounts within retirement plans are a relatively new concept that has not been widely studied yet. Recent research underscores the current emergency savings challenge and shines a light on the potential benefits of these accounts.

Digging Into the Data

According to a report by Bankrate,1 30% of Americans made building an emergency savings account their top financial goal of 2023. The report also found that nearly half (49%) have less savings (39%) or no savings (10%) compared to a year ago, due to continuing economic impacts of inflation and other circumstances. The report also found that only 43% of U.S. adults would pay for an unexpected emergency expense from their savings, while 25% would accrue credit card debt and pay it off over time — a record percentage since polling started in 2014.

Recent research from the BlackRock Emergency Savings Institute and the Defined Contribution Institutional Investment Association Retirement Research Center highlights a positive connection between having emergency savings and retirement planning. The study found that if an individual were to have a rainy-day fund available during emergencies, it’s unlikely they would tap their retirement savings. In fact, they were 70% likelier to contribute to a defined contribution (DC) retirement plan.2 Another study from Commonwealth and SaverLife found that close to a third of individuals said they would either start contributing or contribute more to a workplace retirement account if it was paired with an emergency savings option.2

New Optional Solutions Coming in 2024

Beginning in 2024, SECURE 2.0 provides employers with two ways3 to allow participants access to funds in case of an emergency. First, employers may offer participants an emergency savings withdrawal of up to $1,000 per year. This withdrawal is not subject to an early withdrawal penalty and may be repaid over three years (although not required). Second, employers may offer participants with lower wages an emergency savings account as part of their retirement plan.

Employees may voluntarily contribute or automatically enroll at up to 3% of their annual pay (capped at $2,500). The contributions are made after tax and must be invested in a low-risk product that preserves principal. The employees can withdraw up to the full account balance at least once per month, with the first four withdrawals in the plan year being free. The contributions also count for the purposes of any employer match in the plan, but the matching dollars must be directed to the retirement account within the plan, not the savings account.

Plan sponsors should work closely with their plan advisor, recordkeeper and payroll provider to evaluate all potential emergency savings solutions. For example, studying the history of hardship withdrawals in the plan and usage of funds can help provide insight on an appropriate solution. In addition, basic financial wellness education addressing budgeting and debt management should continue to be emphasized.

1Bankrate's 2023 Annual Emergency Savings Report.

2“Emergency Savings and Retirement Planning Tightly Linked” (401(k) Specialist, 6/9/2023).

3”SECURE 2.0 Series Part 5: A Little More SECURE-ity – Emergency Savings in Your 401(k)” (The National Law Review, 1/23/23).

Web Resources for Plan Sponsors

Internal Revenue Service, Employee Retirement Plans


U.S. Department of Labor,

Employee Benefits Security Administration


401(k) Help Center






Plan Sponsor Council of America


Employee Benefit Research Institute


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