The Defined Contribution Institutional Investment Association is calling on the U.S. government to develop flexible emergency savings solutions for employees.
The Washington, D.C.-based organization is among 38 signatories calling for the creation of a national financial inclusion strategy. The strategy should reflect several key principles, including automatic enrolment in workplace emergency savings plans that are separate from retirement savings while allowing for a wide range of options, particularly for low- to moderate-income households, according to a research brief by the DCIIA and non-profit organization Commonwealth.
A dedicated emergency savings account model could be a buffer against early withdrawals from retirement savings, said the DCIIA, noting that, throughout the coronavirus pandemic, households with at least $1,000 in liquid emergency savings were half as likely to withdraw from their workplace retirement savings plans.
“This is particularly important for households headed by people of colour, who were more likely to have lower incomes coming into the pandemic and to see their income decrease,” said the brief, noting the public policy will ideally be supportive of further evolution in emergency savings solutions by providing clarity for plan sponsors, record keepers and other providers around important guidelines and best practices.