State of Emergency: Your Employees "Rainy Day" Fund

medical emergency As employee benefits professionals, much of your focus is probably towards ensuring employees are saving in the company-sponsored retirement plan. Participation rates, deferral amounts, and match formulas might fill your day-to-day thoughts on the financial standing of employees, and it's for good reason: An employer-sponsored retirement plan has steadfastly become the primary vehicle people in the United States use to save for their futures. 

While this dedication to increasing retirement readiness is extremely important, you may be losing sight of another important aspect of your employees' financial well-being: Emergency Savings. In a recent survey from Bankrate, it was found that 63% of Americans would not have enough in savings to pay for a $1,000 emergency. They would have to resort to other means to pay for unexpected costs such as credit cards, reducing spending in other ways, and possibly cutting into that retirement savings, via loans or hardship withdrawals, which our industry has been discouraging. 

Here I'll explore why you should care about emergency preparedness for employees and what can be done. 

Ramifications for One "Rainy Day" 

It's easy to think that if an employee has a financial misstep, it won't affect their professional life. New data suggests otherwise. In the most recent Employee Financial Wellness Survey from PwC, 52% of employees cited finances as their most significant stressor. Along with this, 55% of respondents stated that not having enough emergency savings for unexpected expenses as their biggest financial concern. This statistic doesn't just affect millennials and younger workers, it's true across all ages and generations, with 56% of Gen X-ers and 50% of Baby Boomers citing this as their top concern.  

For you, this may beg the question: What does an employee not having enough emergency savings have to do with their work?

  • More than 1 in 4 employees report that issues with personal finances have been a distraction at work.

  • 46% of those who reported feeling distracted at work said they spend 3 hours or more each week at work thinking about issues related to their personal finances.

  • Financial stress affects millennials the most with 12% saying they have missed work occasionally due to financial worries. 

These findings support our own thoughts and feelings on the matter. As retirement plan advisors, of course, we place importance on saving for long-term goals (like retirement), but we also see first-hand how other financial problems can impact the daily lives of employees. 

For example, if an employee has been doing a fantastic job of maxing out their retirement account at the expense of building up an emergency fund, where will that leave them if something unexpected happens? If their car breaks down, they have a medical emergency or their housing situation becomes unpredictable, it will undoubtedly affect their entire life -- which of course means, their work life as well. 

What Can Be Done? 

You may be wondering how is it possible for an employer to even start taking steps to remedy these issues. You're not necessarily "in charge" of employees' own personal finances, so what can you really do?

As an HR professional, you inevitably wear multiple hats on a daily basis as you support your organization’s most valuable asset, your people. The range of areas that demand your expertise most likely call you to be everything from a medical insurance guru, to a retirement plan wizard, and on some days, probably even an unlicensed general therapist.  

As the Financial Wellness revolution continues forward, we believe that one new area that Human Resource professionals will undoubtedly be required to further enhance their knowledge just so happens to be one of the most basic concepts that exist in personal finance:

Building three to six months worth of expenditures in an emergency savings account.

If you think about it, most skilled HR personnel have gravitated towards this field of expertise because they enjoy working with people, as they often remind me, no matter how difficult it can be at times. One of the great challenges that arises in light of this evolving trend is that we are asking fish to attempt to swim out of water.  Now I know this is going to come across as a blanket statement and stereotype of all HR professionals who have ever held what I consider to be one of the critically important positions at an organization. But with that said...

HR professionals are not financial experts. 

They are not trained to be financial advisors,  yet with the evolving trends in financial wellness, they are increasingly expected to act in such a capacity. The challenge is that the marketplace is tasking "people who love people" with the new job of encouraging those they serve to get their finances in order and we may be creating a fairly daunting task for you. 

I have come to learn all too well in this journey called life, that if you aren’t gifted in a certain area, then you need to surround yourself with people who are. There is certainly no lack of online resources that can assist someone in building an emergency savings account including HelloWallet and However, providing HR professionals with a plethora of financial planning tools doesn't necessarily give them the skills to actually help their employees make the right financial decisions. In many respects, HR professionals are just as knowledgeable about financial concepts as the people they are trying to help.   

It becomes critical for HR teams at companies of all shapes and sizes to align themselves with an independent advisory team that can communicate and relate to you and your people in a way that is really going to make a difference. Then, and only then, may it be possible to experience some real fiscal transformation. Building and sustaining an appropriate financial safety net needs to be the baseline of a healthy financial wellness program, both for HR professionals, and the employees who they serve.

Questions to Ask 

Whether you work with an independent advisory firm or not, there are important questions to ask yourself, as well as outside vendors in order to help keep your employees on track for more than just retirement:

  1. Are you encouraging our employees to save above and beyond the matching level if they don't have a certain amount set aside for emergencies?
  2. What tools and resources can you provide our staff on an individual basis to help them build up a more robust personal savings account outside of the retirement plan? 
  3. What is your firm's personal philosophy regarding the balance between paying down higher interest debt, building up a rainy day fund to 6 months worth of expenses versus saving enough for retirement? 
  4. What options should we consider to limit/restrict plan loans and hardships which may be a disservice to our employees in the long run? 
  5. Can you offer any 1:1 counseling options to our staff to assist them with these critical areas of their finances?
  6. What budgeting strategies and education does your firm recommend on a company wide basis to provide tangible relief to our employees?