Few employers are doing so
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New research shows that employers don’t seem willing to combine 401(k) plans with emergency savings options for workers.
Although companies have been allowed to allow $1,000 emergency withdrawals from retirement savings since 2024 and offer 401(k)-linked emergency savings accounts, there has been little adoption, according to a research report. Pioneer report It was published this week.
Only 4% allow emergency 401(k) withdrawals of $1,000, according to Vanguard’s analysis of 1,300 plans. The report notes that 401(k)-linked emergency savings accounts “earn minimal or no interest” from employers.
These two options in the plan were allowed under the 2022 retirement bill known as the Secure Act 2.0, amid growing concerns about Americans’ lack of emergency savings.
While the vast majority of employers don’t offer 401(k)-linked accounts — technically called retirement emergency savings accounts — some companies do offer external emergency savings accounts, said Craig Copeland, director of wealth benefits research at the Employee Benefits Research Institute. These external accounts are typically held at FDIC-insured banks, and after-tax contributions are made through payroll deductions.
Covering a $1,000 emergency is a challenge for most people
Building and maintaining emergency savings can be difficult for many households, especially those struggling to keep up with the high cost of living. Although inflation has decreased somewhat Prices are up more than 25% overall since 2020, rising at an annual rate of 2.4% since peaking at 9.1% in June 2022. consumer price index.
Financial advisors generally recommend setting aside three to six months of living expenses as emergency savings.
But only 47 percent of respondents to a December survey said they had the money to cover a $1,000 emergency expense, according to Bankrate’s annual report. Emergency Savings ReportIt was published last week. Additionally, 29% said they have more credit card debt than emergency savings.
Last year, employers’ concerns about their workers’ financial well-being reached a new high: Up to 48% rated their concern at 9 or 10 on a scale of 1 to 10, compared with 43% in 2024 and 39% in 2023. range research From EBRI. As recently as 2019, the year before the pandemic, this share was 22%.
Contributions count towards the 401(k) limit
Secure 2.0 created retirement emergency savings accounts as a “basket” to the 401(k). So these are established and maintained in the 401(k) plan itself. Among other things, contributions are after-tax; Roth contributions — and count toward the 401(k) contribution limit. For 2026, this amount is $24,500, with an additional $8,000 allowed for investors aged 50 and over.
Legislation sets the maximum annual contribution for the emergency account at $2,500, with adjustments for future inflation, and this year it was increased to $2,600.
As for $1,000 emergency 401(k) withdrawals: Most employers – 94% by 2024 According to Vanguard — already allow employees to access their retirement savings if they face financial hardship.
“In many cases, it will add something that is already provided,” Copeland said.
While employers have largely avoided the Secure 2.0 emergency savings provisions, this may change over time.
“If a plan sponsor wants to move forward with an emergency savings program at their company, they will analyze the options available and do some of that. [analysis] It will be the easiest thing to implement,” said Will Hansen, executive director of the Plan Sponsor Council of America.
“Withdrawing $1,000 is easier than withdrawing money.” [401(k)-linked account] and an account that is not affiliated with the plan may also be an easier feature,” Hansen said.
Among other administrative complexities, one of the sticking points about 401(k)-linked accounts is that high-earning employees are covered under a single IRS test. Earning $160,000 or more – they are not allowed to participate. Brandie Barrows, a partner at Hall Benefits Law in San Francisco, said it’s an administrative challenge because workers’ incomes can fluctuate, making it difficult for the 401(k) plan’s registrar to monitor.
A bipartisan bill introduced in both the House and Senate in December would expand the right to use accounts. in the name Emergency Savings Enhancement ActThe measure would eliminate the exclusion for higher-paid employees and increase the annual contribution limit to $5,000.
“It wouldn’t hurt to remove that exclusion and increase the amount people can save,” Barrows said.
External accounts are ‘less complicated’
Meanwhile, experts say employers will likely continue to partner with outside firms that offer emergency savings accounts. EBRI’s latest research shows that 51% of firms with 500 or more employees offer some form of emergency funding. This includes external savings accounts, but they are not detailed in the data.
“It would be pretty simple if they offered it off plan,” Copeland said. He said it’s “less complicated” than setting up an account under a 401(k) plan.
Keeping emergency funds in a 401(k) plan is also a liquidity issue, Copeland said. “It’s much easier to get the money out of the plan right away, whereas it can take at least two to three days to get it out of the plan,” he said.
