Building Emergency Savings Through Employer-Sponsored Rainy-Day Savings Accounts
Roughly half of Americans live paycheck to paycheck. When financial shocks occur during their working life, many of these households tap into their retirement savings accounts. We explore the practical considerations and challenges associated with helping households accumulate liquid savings that can be deployed when urgent pre-retirement needs arise. We propose that this can be achieved cost effectively by automatically enrolling workers into an employer-sponsored payroll deduction “rainy-day” or “emergency” savings account, and we explore three specific implementation options: (a) after-tax employee 401(k) accounts, (b) deemed Roth IRAs under a 401(k) plan, and (c) depository institution accounts. We evaluate the pros and cons of each approach and conclude that all three approaches merit exploration and field testing. We refer practitioners interested in seeing each implementation option discussed in its own self-contained section to the version of this paper distributed as NBER Working Paper No. 26498.
Keywords: savings; Household; Saving;
Citation:
Beshears, John, James J. Choi, J. Mark Iwry, David C. John, David Laibson, and Brigitte C. Madrian. "Building Emergency Savings Through Employer-Sponsored Rainy-Day Savings Accounts." In Tax Policy and the Economy, Volume 34, edited by Robert A. Moffitt, 43–90. Chicago: University of Chicago Press, 2020. View Details