A bipartisan bill aimed at boosting emergency savings and reducing retirement plan leakage has been introduced in the Senate.
The Emergency Savings Account Act of 2022, introduced Thursday by Sens. Todd Young, R-Ind., and Cory Booker, D-N.J., would allow employers to offer workplace savings accounts separate from an employer-sponsored retirement plan.
Under the bill, workers can save up to $2,500 in an emergency savings account, although plan sponsors can establish a lower cap, according to a fact sheet.
The savings accumulated in the accounts will be made on an after-tax basis and can be withdrawn without tax penalties at any time, with permissible limitations on withdrawal frequency. Contributions will be treated as elective deferrals for purposes of retirement matching contributions and plan sponsors can use automatic enrollment at up to 3% of a participant's salary. Employees can opt-out or adjust their contribution at any time, the fact sheet noted.
"We can't always predict the future, and too many Hoosier families encounter situations where they struggle to cover unexpected expenses through no fault of their own," Mr. Young said in a news release. "Unfortunately, this can cause families to dip into their retirement savings, which harms their financial future. Our bipartisan bill would help families create stable emergency savings for unforeseen expenses, while keeping retirement accounts intact for the future."
The senators cited a March report from the Consumer Financial Protection Bureau that found that 59% of workers with access to a retirement account but no emergency savings withdrew money from their retirement account in the previous 12 months compared to only 9% of those who had at least a month of emergency savings on hand.
"We know that many Americans are struggling to make ends meet, and that even a small, unexpected expense or emergency can send families into a financial spiral that puts them even further behind," Mr. Booker said in the news release. "At the same time, for many of these workers, retirement is becoming out of reach. I'm proud to work with Senator Young to address these savings crises by creating opportunities for workers to build savings for short-term, unexpected costs while also putting them on a pathway for a more financially secure retirement."
The bill has earned widespread praise from retirement industry, including the American Benefits Council, ERISA Industry Committee, U.S. Chamber of Commerce and American Council of Life Insurers.
