On February 15, 2022, Associate Director of Policy for the Aspen Institute Financial Security Program, Tim Shaw, testified before the Kansas House Commerce, Labor and Economic Development Committee for a legislative hearing on HB 2680, introduced by Representatives Mari-Lynn Poskin, Stephanie Clayton, and Sean Tarwater. This legislation would establish the Kansas employee emergency savings account (KEESA) program to allow eligible employers to establish employee savings accounts linked to payroll deductions in an effort to encourage emergency savings and assist employers with recruiting and retention.
Existing emergency savings solutions are not meeting the needs of workers and financial service providers have little incentive to offer low-balance savings accounts or the ability for customers to make frequent deposits or withdrawals. Shaw’s testimony emphasized the dual role of emergency savings in serving as a critical lifeline to workers faced with unexpected emergency expenses and as a necessary first step to building long-term wealth. But, research shows 45% of Americans could not cover a $400 emergency expense without borrowing or selling something. This staggering statistic was reiterated at the hearing by Leigh Phillips, CEO of SaverLife, who also emphasized how having even small amounts of emergency savings set aside can make a significant difference to family financial security.
Fortunately, as Shaw’s testimony highlights, some employers have stepped up. UPS began offering its emergency savings plan program in October 2020, allowing workers to contribute towards their 401(k) and an emergency savings option within the account, using after-tax payroll deductions. Trucking company Pitt Ohio offers its employees a payroll-linked emergency savings account through the company’s credit union. Three years after launching the initiative, almost half of Pitt Ohio’s employees were participating. These are important steps in providing workers with the financial resources necessary to weather unexpected emergencies and build long-term wealth.
But, relying on employers to implement emergency savings solutions is not enough. The proposed KEESA program would provide small businesses the support they would need to offer workers emergency savings accounts linked to employee payroll deductions, and to provide a first-of-its-kind matching employer contribution. It would help Kansas businesses distinguish themselves by providing a cutting-edge tool to workers that few employers in the country have taken advantage of.
Aspen FSP’s report Moving from Experimentation to the Mainstream: Policy Options to Automate Workplace Emergency Savings offers additional policies that should be considered when enhancing emergency savings. In addition to employer-side tax credits, allowing for automatic enrollment in emergency savings accounts in a similar way it is allowed for retirement accounts would be a powerful tool to increase participation in workplace emergency savings. In addition, as policies to boost emergency savings like the KEESA program spread, it will be important for policymakers to address asset limits, which can penalize savers by preventing them from accessing public benefits when they obtain resources or build savings above a certain threshold, which can be as low as $2,000.