The Strengthening Financial Security Through Short-Term Savings Accounts Act of 2018 is a bill introduced in the Senate in July 2018 (S. 3218). It proposes, in short, to “allow employers to offer short-term savings accounts with automatic contribution arrangements for financial emergencies.”[i] This bill has only been introduced; it has been referred to committee, and it remains to be seen how it will progress. This bill has bipartisan support, and it is something employers may want to watch, as it could result in new benefit options to offer employees if it eventually passes.
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What this bill would do is this: it would allow employers to sponsor short-term savings accounts on behalf of employees, with automatic contributions deducted from payroll, which could be set up in similar ways to how 401(k) automatic contributions are set up today. The savings account would have to comply with the regulations set out in the bill, and under the current version of the bill would be maxed out at $10,000. These types of accounts are sometimes referred to as “side-car” accounts because they’re meant to complement retirement savings. The current version of the bill proposes that employers could receive government incentives of up to $400 per employee account to get these set up.
Under current law (Employee Retirement Income Security Act (ERISA)), there’s no provision for this type of account to be funded pretax, so it would likely remain funded posttax, which also minimizes complications when the employee needs to access the funds. But, as noted above, the exact details may change as the bill progresses in the future.
Why Was This Bill Proposed?
Recent studies have shown that the majority of employees would have a difficult time covering an emergency expense. Most employees don’t have enough savings to weather problems that arise. This situation means that employees are likely operating with undue financial stresses—knowing that a single problem could plunge them into an untenable situation. Week in and week out, financial stresses may build. That stress can spill over into the workplace, decreasing focus, decreasing productivity, increasing tensions, and increasing absences.
The general premise behind this bill is that employee financial insecurity is a burden for both employees and employers—and if there were ways employers could help, that would benefit everyone. This type of employee benefit would be complementary to retirement savings—in fact, it should be the type of benefit that would reduce the chances an employee needs to borrow against his or her 401(k) in a financial emergency.
Almost a third of American employees have taken a loan out against their retirement or taken an early withdrawal. And millions have taken costly payday loans. These actions are further eroding financial security rather than helping it. If there were more ways for employers to assist employees in covering short-term problems that arise, it stands to reason that fewer employees would need to take such drastic measures. Covering an emergency with funds that were already set aside for that purpose not only alleviates the immediate stress; it also means that there’s less impact on future financial stability.
[i] https://www.congress.gov/bill/115th-congress/senate-bill/3218/text