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Matching contributions to retirement accounts, health savings accounts, and emergency savings accounts are some of the most popular and effective ways that employers can enhance their benefits programs. If you talk to a financial advisor, you may hear them refer to employer matching offers as “free money.” In the ways that count, this is entirely accurate: Through employer matching contributions, employees participating in various workplace savings programs can accrue more money in their accounts at a faster rate, allowing them to take advantage of interest, or invest more aggressively for higher returns.
Matching contributions have become well-associated with retirement savings accounts such as 401(k)s. There are a number of reasons why employers find it valuable and beneficial to offer these plans:
Vanguard reported in its 2023 How America Saves survey that 85% of employers offered some kind of matching contribution to employees’ elective retirement savings deposits, with an average value of 4.5% of worker pay. A 401(k) match might be structured at 50% of up to 6% of an employee’s pay (for a maximum contribution of 3% of that employee’s pay), or a 3% safe harbor match, for example.
Compared to retirement savings plans, workplace emergency savings accounts (ESAs) are relatively new, and there isn’t as much data (yet) about how much employers should match or what is considered standard (or financially beneficial). Here’s some of what we’ve learned about matching in workplace ESAs at SecureSave.
A workplace ESA is a savings account designated specifically for emergencies. While 401(k) plan contributions are typically based on a percentage of the employee’s salary and capped at a certain dollar amount per year (which depends on the employee’s age), workplace ESA contributions tend to be set using dollar amounts, and they aren’t typically capped. One way employers can encourage workplace ESA participation is by offering matching ESA contributions, which are typically based on a minimum dollar amount instead of a percentage.
For example, the employer might decide to set the workplace ESA matching contribution of $5 to kick in at $25 per pay period. If an employee decides to contribute at least $25 from each paycheck to their workplace ESA, then the employer will contribute or “match” $5 per pay period, allowing the employee to deposit a total of $30 (or more) into their emergency fund. Savers can decide to contribute more than $25, but the maximum employer match of $5 remains consistent. If employees choose to save less than $25 per pay period, then they won’t be eligible for the match.
Employers can also offer sign-up bonuses for opening a workplace ESA, or milestone bonuses for hitting certain milestones ($150 saved, for example). Offering a payroll match helps employees reach these milestones more quickly, which should be highlighted in any workplace financial coaching or educational materials.
One thing to note: Workplace ESAs linked to workplace retirement savings plans (known as pension-linked emergency savings accounts, or PLESAs) have different rules around employer matching contributions: Any employer-contributed matching must be made to the retirement savings account, not the ESA, and are therefore subject to different withdrawal rules.
To build an ESA matching program that helps engage employees and empower them to reach their savings goals more quickly, employers should first discern the financial needs and preferences represented in their workforce.
Financial stress affects most workers today, according to SoFi, which found that 86% of full-time employees are worried about their finances. While earning more money can help alleviate some of that stress, another survey found that nearly half (47%) of employees who earn $100,000 or more per year are experiencing financial anxiety.
Every employee’s emergency savings goal will be different depending on their circumstances. One guideline is to save up between three and six months’ of living expenses (housing, utilities, food, transportation, and other expenses). To help manage unexpected housing repairs, homeowners should save up between 1% and 4% of their home’s value. Some of the most common financial emergencies also include medical or dental emergencies, car problems, or unexpected moves or life changes.
Saving for an emergency has become increasingly difficult for most workers. More than three-quarters of employees (78%) live paycheck to paycheck, meaning there’s not much left to save or invest. Understanding the challenges to starting and building an emergency fund can give employers better insight into the incentives and contributions they might want to provide as part of a workplace ESA.
The most recent SecureSave survey uncovered interesting data around how demographics might influence savings behavior:
So what can employers do to help employees struggling the most? One option for out-of-plan ESAs is to create a tiered matching plan that’s based on income level. Lower-income employees might be eligible for larger matches than higher-income employees, for example. (This option isn’t available for in-plan ESAs, which are subject to the Employee Retirement Income Security Act.)
Employers could also tie contributions to specific savings goals. They could create savings incentives for employees working toward a higher education level or a new degree, for families going through transition (such as birth or adoption, or family caregiving) — or for anyone who doesn’t have at least $500 in their ESA. These incentives could include matching contributions designed to help workers reach those goals more quickly.
When we asked employees if they were interested in workplace ESAs as a benefit, almost all of them (90%) said “yes.” Inertia is powerful, however, and registering for a workplace ESA might not be at the top of every employee’s list of things to do.
Implementing automatic enrollment and contribution escalation features can help. Automatic enrollment does exactly what it implies: everyone on the company payroll gets enrolled in the workplace ESA program.
Automatic contribution escalation is a bit more complex. It means that employee contributions will be escalated, or increased, until the workplace ESA reaches a predetermined amount. If employers know that their workforce members would not be able to pay a $500 emergency expense, escalating contributions until the workplace ESA has at least $500 in it would be one way to help employees meet this goal.
While both of these features can help employees cultivate consistent savings behavior, it’s always important to explain both automatic enrollment and contribution escalation so that employees fully understand where their paycheck is going and why.
Almost all employees (more than 90%) want help with their personal finances, according to SoFi. Employers can meet that need by offering financial literacy workshops, personalized financial coaching, and other resources tailored to each employee. These offerings should always include information about a workplace ESA and the employer matching structure, as saving for an emergency is a key component of financial wellness.
It’s also critical to communicate the existence of the workplace ESA in hiring and onboarding materials for prospective and new employees. Our most recent survey found that among respondents who are looking at taking a new job in the next six months, nearly half (48%) would prefer an employer-matched workplace ESA over an employer-matched 401(k) plan. Recruiters and hiring managers should know enough about any workplace ESA to be able to answer basic questions from potential employees, and workplace ESAs should be highlighted and discussed in onboarding materials.
Providing employer contributions or matching to a workplace ESA is ultimately an investment in employees — and as with any investment, it’s essential to assess its impact. There are a number of ways to measure the success of a matching program, including both quantifiable and qualitative metrics.
Employers can evaluate quantitative data such as participation rates, contribution levels, and savings outcomes to see how many of their employees are using the benefit, how much those employees are contributing per pay period, and the current balance of any ESAs as well as how much has been saved over time.
Employees who utilize workplace ESAs are also less likely to leave. Our research found that the turnover rate for employees using workplace ESAs was 13%, compared to the 33% national average. Furthermore, comparing productivity rates before and after implementing a workplace ESA, or before and after adjusting the employer matching program, can shed light on how enabling emergency savings helps employees focus while at work.
It’s also wise to incorporate qualitative data that can provide deeper insight into how employees are engaging with workplace ESAs. Send out brief anonymous surveys asking for direct feedback on a monthly or quarterly basis that ask employees open-ended questions about company loyalty or how they have been using any emergency savings accrued through the workplace ESA. The responses will provide personal testimonials about emergency savings and financial wellness.
As workplace and industry norms shift and change, employers should periodically examine their current benefit offerings and adjust what they’re providing. Workplace ESAs are no different.
If you learn that most employees are enrolled in a workplace ESA, but many of them are not depositing the minimum amount that would trigger an employer matching contribution, then that’s a signal that perhaps they don’t understand how the matching works (or don’t even know it exists!), or that the minimum employee contribution amount designated is too high for most employees.
Matching employee contributions to a workplace ESA can help increase worker loyalty, attract highly qualified hiring prospects, and alleviate financial stress in the workplace.
Offering flexible matching structures, utilizing automatic enrollment and escalation features, and highlighting the benefits of workplace ESA matching will increase participation and ensure that employers are doing everything they can to support their staff members. Ongoing evaluation and feedback collection give employers the insight they need to understand how well the match is working and how they can adjust it for even more effectiveness in the future.
By thoughtfully considering all of these variables, employers can put together a workplace ESA matching contribution structure that will ultimately become one of the best investments they make in their organizations.