Data & Research August 31, 2022

Emergency Savings Features That Employees are Looking for

Workers earning low to moderate incomes are less likely to withdraw from their retirement account or take actions that jeopardize their financial futures.

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Commonwealth and the Defined Contribution Institutional Investment Association Retirement Research Center have released new research that shows workers earning low and moderate incomes continue to face challenges in financial security, exacerbated by the COVID-19 pandemic.

With the current economic environment, it has become even more challenging to build liquid savings for unexpected expenses. The report, “Emergency Savings Features That Work for Employees Earning Low to Moderate Incomes,” examines how employers and service providers can build and offer emergency savings solutions that are inclusively designed for lower income earners.

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Those with lower financial wellbeing scores are more likely to be interested in workplace emergency savings programs, the report says. Individuals with emergency savings are less likely to have accumulated debt, to have prematurely tapped retirement savings or to have taken actions that jeopardized their financial future.

Workers earning lower wages prefer no fees (34%), no minimum balance requirements (17%) and liquidity (16%)—defined as immediate access to funds—in an emergency savings solution, the report found. With nearly 1000 respondents, these preferences stayed consistent regardless of race, gender or income.

The report suggests that these findings should demonstrate to plan advisers and recordkeepers on how features should be prioritized when choosing or designing a quality emergency savings solution. One of the biggest concepts for to grapple with will be the demand for liquidity. Access to savings must be immediate and penalty free during a time of need, the report adds.

Participants are overwhelmingly interested in incentives, with 91% who said incentives can help motivate them to open a savings account. Employers have multiple options of structuring the incentive, including a reward to open an account (98%), matching contributions (96%), a reward for consistent savings (93%) and a reward for reaching a target savings amount (92%).

The report found that workers with no emergency savings were significantly less likely to contribute to a defined contribution plan. Offering an emergency savings solution could be helpful in boosting retirement plan participation among employees and could further protect retirement assets.

When looking at the population of those eligible but not participating in DC plans, they tended to be younger, have lower income levels, and be Black or Latino, the report said. Overall, preference for an emergency savings account linked to a workplace retirement account was low for workers earning lower incomes, which could indicate a serious challenge emergency savings solutions may face.

The report also asked questions to gain better insight into effective employee benefit communication strategies, as there is a lack of auto-enrollment and payroll integration for emergency savings solutions. Most employees looked to email (55%) as the primary place for news about benefits. Many supported increasing the frequency of communication (35%), holding workshops (35%), or having a human resource representative present new updates (35%). These findings show the need for constant and varied ways to reach workers, the report adds.

Compliance August 31, 2022

Union Pension in Puerto Rico Latest to Receive PBGC Relief

With its latest relief payment, the Pension Benefit Guaranty Corporation has now distributed more than $7.5 billion to stressed union pension plans that cover over 152,000 workers, retirees and beneficiaries.

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This week, the Pension Benefit Guaranty Corporation announced its approval of another special financial assistance payment for a stressed union pension plan.

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The latest plan to receive relief is the Gastronomical Workers Union Local 610 and Metropolitan Hotel Association Pension Fund, known as the GWU Local 610 Plan. Based in San Juan, Puerto Rico, the pension covers more than 2,600 participants in the hospitality industry.

The GWU Local 610 Plan became insolvent in June 2021. At that time, the PBGC started providing financial assistance to the plan. In a statement about the latest relief payment, Secretary of Labor Marty Walsh, who serves as the chair of the PBGC’s board of directors, said the new assistance will deliver the secure retirement the union’s workers were promised in return for many years of hard work.

As Walsh noted, the special financial assistance will enable the plan to pay retirement benefits without reduction for many years into the future. In all, the plan will receive $28.3 million in assistance, including interest to the expected date of payment to the plan. 

In addition to the $28.3 million to be paid to the plan, the PBGC’s Multiemployer Insurance Program will receive some $2.8 million. This is equivalent to the amount of the GWU Local 610 Plan’s outstanding loans, including interest, for the previous financial assistance the PBGC provided beginning in June 2021.

The PBGC’s Special Financial Assistance program was enacted as part of the American Rescue Plan Act of 2021. The program provides funding to severely underfunded multiemployer pension plans, and it requires plans to demonstrate eligibility for relief and to calculate the amount of assistance pursuant to ARPA and PBGC regulations. As of August 30, the PBGC has approved over $7.5 billion to plans that cover over 152,000 workers, retirees and beneficiaries.

Under the program, the payments and earnings thereon must be segregated from other plan assets and may be used only to pay plan benefits and administrative expenses. Plans are not obligated to repay the relief to PBGC, but plans receiving SFA are also subject to certain terms, conditions and reporting requirements, including an annual statement documenting compliance with the terms and conditions.

The relief program operates under a recently updated final rule that became effective on August 8. Sources agree that the final updates made to the SFA program are helpful, but some are concerned about the expanded ability to invest relief funds in potentially volatile equities.

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