Is auto enrollment the right choice for workplace emergency savings?

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Devin Miller
January 11, 2024

How do you ensure maximum participation in your company’s workplace emergency savings program? One crucial decision is whether to implement auto enrollment instead of an opt-in option when possible. 

But how do you determine what’s right for your employees? There are a number of factors to consider regarding auto enrollment in workplace emergency savings programs

Understanding emergency savings auto enrollment

Auto enrollment, a concept that was first popularized in retirement savings, involves automatically enrolling employees in a savings program. That means that when an employee becomes eligible to participate in your company retirement plan, they are automatically enrolled and signed up for specific contributions that would go into the emergency savings account (ESA) from each paycheck — unless the employee opts out.

In other words, employees who are eligible and don’t explicitly opt out of plan participation will have a default percentage of their salary contributed to their plan from each paycheck.

For out-of-plan ESAs, auto enrollment is more of a theoretical exercise. With a makeshift banner of laws across various states, auto enrollment isn't feasible without federal guidance. Some ESAs providers and employers are advocating for Congress to pass legislation regarding auto enrollment for out-of-plan ESAs.

However, this strategy is supported by the SECURE 2.0 Act only for in-plan ESAs or PLESAs. As of 2024, the act allows employers to automatically opt employees into an in-plan emergency savings account at a rate of up to 3% of eligible pre-tax wages (essentially, an emergency fund within a defined contribution retirement savings plan like a 401(k) or 403(b)).

The case for auto enrollment for ESAs

The main advantage of PLESA auto enrollment is its ability to boost employee engagement in savings programs. Additional benefits include: 

  • Simplified enrollment 
  • Increased savings rates

While auto enrollment is a relatively new strategy in the workplace emergency savings space, the same strategy for retirement savings has yielded positive outcomes for many individuals. According to a poll from Principal Financial Group, an overwhelming majority (80%) of employees who were automatically enrolled in their workplace retirement plan reported starting to save for retirement sooner than if they had opted in on their own, and increasing their savings rates (65%). 

In the emergency savings context, starting to save earlier can lead to higher savings levels and increased financial security among employees over time.

Nevertheless, auto enrollment raises certain challenges. 

Potential drawbacks and challenges to ESA auto enrollment

Auto enrollment is associated with several challenges, including: 

  • Perceived loss of autonomy. Employees might feel their financial choices are being made for them, leading them to feel uncomfortable or dissatisfied. An employee who prefers to manage their savings independently may view automatic deductions as an unwanted intrusion into their personal financial management.
  • Resistance to automatic deductions. Some employees might be resistant to automatic deductions from their paycheck, especially if they are on a tight budget. For employees living paycheck to paycheck, even small deductions for emergency savings could be disruptive and further exacerbate their financial strain. 

Additional challenges that may arise for some organizations include increased administrative burden and ongoing management, potential legal and compliance issues relating to state laws, and possible negative impacts on low-income workers.

Given these potential challenges, it’s essential to be transparent and implement clear communication strategies to help mitigate misunderstandings and encourage employee engagement and acceptance of the program. 

Employee perspectives around ESA auto enrollment

Understanding employee perspectives is vital. Before implementing an auto-enrollment strategy when setting up a PLESA, field input from your current employees. Gaining the buy-in of eligible employees will be critical in ensuring the success of this approach

If we consider the state of emergency savings among Americans in general, there’s a clear need for more savings—with only 19% of respondents in our recent SecureSave survey counting at least six months’ worth of emergency savings in their account, and 27% with three months’ of savings. Moreover, there’s a notable demand for employer-sponsored emergency savings. Research from the Bipartisan Policy Institute found that 42% of Americans want to be automatically enrolled in a workplace emergency savings program, and another 14% may be open to the idea. 

The same SecureSave survey also indicated that 90% of employees are interested in such a program, and we can see that this offering is incredibly favorable among American workers. Still, every workforce is different, so make sure to consider whether the auto-enroll option aligns with your employees’ needs.

Regulatory considerations

It’s important to be informed about regulations around auto enrollment in savings programs. While regulations in the U.S. may vary by state, they typically cover factors including: 

  • Employee consent and notification. Employers must inform employees about the auto-enrollment process, including details about how the program works, the amount that will be deducted, and the employee’s right to opt-out or change contribution amounts. The clearer and more easily accessible you make this information, the better.
  • Contribution limits. For in-plan ESAs, there may be legal limits on the percentage of an employee’s salary that can be automatically deducted for emergency savings. These limits help ensure that deductions do not excessively reduce an employee’s take-home pay.
  • Opt-out provisions. Offering employees the ability to opt out of the program or change their contribution levels at any time is a standard requirement. This provision ensures that auto enrollment does not override employee choice. Make sure the opt-out option is prominent and easy to find.

When in doubt, consult with a legal professional for help navigating regulations. 

Alternatives to emergency savings auto enrollment

While auto enrollment in an ESA offers various advantages, it’s important to consider alternatives, especially if you're implementing an out-of-plan ESA and auto enrollment isn't currently possible. Popular emergency savings strategies include: 

  • Voluntary enrollment. Employees choose to opt into the emergency savings program at their discretion. This strategy empowers individuals to make their own decision, honoring their autonomy and financial preferences. Employers can offer to match a portion of the employee’s contributions to their emergency savings—an added incentive that encourages employees to opt in and save more while giving them control over their participation.
  • Flexible savings options. In lieu of a single emergency savings option, some companies offer a variety of savings plans for employees to choose from. Examples include high-yield savings accounts or money market accounts. This approach allows employees to choose the option that best suits their financial goals and risk tolerance.

In addition, financial literacy initiatives and other financial wellness resources are always a good idea.

ESA auto-enrollment best practices 

Once you’re ready to move forward with ESA auto enrollment for a PLESA, effective implementation requires careful planning. Here are four key elements for successful implementation:

1. Clear and frequent communication

The goal here is to ensure that employees fully understand the program, its benefits, and their rights, including how to opt out or change contribution levels. Accomplish this by developing a comprehensive communication plan that includes: 

  • Emails
  • Informational meetings
  • Easy-to-understand materials (print and online) 

Make sure to regularly update employees about the program and provide resources for further questions.

2. Simplified enrollment and opt-out process

By making the enrollment and opt-out processes as easy as possible, you’ll help encourage participation while also respecting employee autonomy. Make sure to: 

  • Offer a straightforward process for enrolling and opting out, via a simple form or an online portal. 
  • Ensure the process is accessible and user-friendly, and provide assistance for those who need it.

3. Customizable contribution options

It’s important to allow employees to tailor their contribution levels to fit their financial situations, which can help enhance satisfaction and participation. Accomplish this by:

  • Offering a range of contribution levels and the flexibility to change these amounts at any time. 
  • Providing tools or calculators to help employees determine the best contribution level for their circumstances.

4. Ongoing support and financial education

Fostering the overarching financial wellness of your employees means supporting them in making informed financial decisions and understanding the value of emergency savings. Consider offering: 

  • Financial education workshops
  • One-on-one counseling sessions
  • Online resources focused on budgeting, saving, and the importance of emergency funds

Make sure to regularly update and refresh these educational resources.

Choosing the right ESA enrollment structure

Auto enrollment in in-plan workplace emergency savings programs presents several benefits along with some challenges. It’s important to carefully assess your specific workforce and organizational needs before moving forward with an auto-enrollment strategy.

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