Expanding the Adviser Remit

Nick Maynard

One major shift for employers in the past several years has been their increasing focus on the financial wellness needs of a diverse workforce. ​Foundationally, an inclusive financial wellness strategy must offer tools to help build emergency savings. Research has shown that, in a diverse workforce, short-term liquidity—i.e., emergency savings—is a critical starting point from which workers may go on to open a retirement plan account; at the same time, it makes current plan participants less likely to tap retirement savings in emergencies. To keep up with industry pressure, understanding the emergency savings landscape in and out of the retirement plan is necessary for all retirement plan advisers. 

As employers innovate ideas for inclusive financial wellness, plan advisers have an opportunity to help them assess and choose, develop and/or deploy benefit programs. Advisers could bring an understanding of the important role of emergency savings in overall financial wellness and retirement wealth building. They also could help employers think inclusively by learning more about the unique needs of employees earning a low or moderate income so that emergency savings benefit programs take account of these workers.  

Emergency savings has become a common topic within the retirement industry in recent years. The passage of SECURE 2.0, which built on the Setting Every Community Up for Retirement Enhancement Act of 2019 and includes two emergency savings provisions, has further increased plan sponsor interest in this area. One provision makes it possible for employers to automatically enroll plan participants into an emergency savings program in-plan and provides employees with new ways to handle unexpected expenses without penalty.  

Our work with the Defined Contribution Institutional Investment Association’s Retirement Research Center, as part of BlackRock’s emergency savings initiative, further underscores the important role that emergency savings plays for participants earning a low or moderate income. Those participants with emergency funds were half as likely to take a negative action on their retirement savings.  

Designing in-plan emergency savings vehicles that meet the needs of lower earners is a powerful way to protect their plan accounts from negative actions.  

One provision makes it possible for employers to automatically enroll plan participants into an emergency savings program in-plan …

In our recent collaboration with UPS and its retirement provider Voya Financial through BlackRock’s emergency savings initiative, we used these principles to build an emergency savings solution in the after-tax option of the 401(k) plan. The program resulted in $10 million in additional savings for UPS employees. 

However, not all workers who are eligible participate in a retirement plan, and many workers earning lower incomes don’t qualify for one at all. An inclusive emergency savings benefit takes into account nonparticipants as well. Through the BlackRock initiative, we’ve piloted a number of innovative approaches outside the retirement plan that advisers can leverage in working with clients. 

Emergency savings vehicles attached to payroll have proven an effective place to look when developing a savings benefit. In Commonwealth’s collaboration with ADP on emergency savings features, we increased savings to over $1.5 billion when adding enhanced high-quality savings features.    

Besides reducing negative actions on retirement plans, emergency savings has the potential to both increase participation in and contributions to the plans. When advising clients about financial wellness strategies, it’s crucial for plan advisers to have a strong understanding of emergency savings in order to take an approach that incorporates diverse employee needs, especially those of employees making no more than a moderate income.  

Spurred by options available in SECURE 2.0, advisers can expand their view of emergency savings with an approach that meets the needs of nonparticipant and noneligible employees and leverages proven tools such as emergency savings features on payroll cards and mobile apps. The adviser can help sponsors build programs that contribute to the short- and long-term financial wellness of all of their employees.

Nick Maynard is a senior vice president at the national nonprofit Commonwealth, where he has spent almost 15 years building, piloting and scaling innovations to improve the lives of financially vulnerable people.