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Emergency Savings Accounts: The Most Important 401(k) Development Since Auto Features?

Last Updated: February 26, 2024

We have a big problem at hand when it comes to the financial security of the American workforce. You may have already heard, but if you haven’t come across the wealth of media attention and research, let us fill you in. Too many Americans struggle with their overall financial security.

If you haven’t experienced this first-hand or with your friends and family, rest assured, that the proof is in the numbers:

  • ● In PricewaterhouseCoopers 2023 annual employee wellness survey of more than 3,000 workers, 57% said finances are the top cause of stress.1

  • ● Forbes reports roughly 8 in 10 Americans (79%) were concerned about their families’ financial security.2

  • ● A CNBC survey found that nearly 75% of American working adults are stressed about their personal finances. More than half of the respondents (61%) reported “living paycheck to paycheck.”3

  • ● The U.S. Consumer Financial Protection Bureau in 2022 found nearly one quarter (24%) of Americans had no emergency savings at all, and almost 4 in 10 (39%) had less than one month’s worth of income set aside for emergencies.4

Financial insecurity is hard to quantify precisely. It is commonly defined as living paycheck to paycheck, or perhaps, more technically, the anxiety produced by the possible exposure to adverse economic events. When people are financially insecure, they are unable to meet their basic needs, handle common and unexpected emergencies, or save to meet future financial goals.


Recent USA Today research finds that there are two major barriers to getting Americans financially secure: 1) a lack of emergency (i.e. short-term) savings, or the inability to withstand financial shocks, and 2) a lack of retirement (i.e. long-term) savings, or a sense of hopelessness for a secure financial future.6 To improve the financial security of the American workforce, we need to address both of these “savings” barriers.


However, saving is easier said than done, especially when living paycheck to paycheck. It is generally accepted that most of us should have an emergency fund that contains somewhere between 3 and 6 months of living expenses. In a 2024 Bankrate survey, they found that 56% of Americans stated that they could not cover an unexpected $1,000 expense.7


Historically, emergency savings accounts have been the individual responsibility of the worker and have only been accessible in a separate account outside of work. With the majority of Americans unable to save for an emergency expense, it’s safe to say these kinds of accounts are not commonly utilized sufficiently among the greater population.


That’s about to change. Now, thanks to the SECURE Act 2.0’s Pension-Linked Emergency Savings Account (PLESA) provision, the 401(k) has the opportunity to address both short-term financial needs and long-term financial needs.


We believe emergency savings accounts within 401(k) plans are one of the most significant developments in recent years to help close the savings gap and improve the financial security of the American workforce.

Secure 2.0 Act’s Emergency Savings Accounts (PLESA): The Most Important 401(k) Development Since Auto Features?

PLESA’s integration of emergency savings into 401(k)s marks a significant step forward in addressing the financial security concerns of American workers by providing a streamlined approach to both short-term and long-term savings within existing employer-sponsored retirement plans. Read about the benefits and features of the new legislation.

Why Emergency Savings Accounts Within 401(k)s is a Great Idea

The key to successful saving lies within a simple but powerful financial planning concept: pay yourself first. The 401(k) is built upon payroll deduction which allows participants to do just that. Through the innate function of payroll deductions, 401(k)s are fundamentally designed to withhold savings before it is available to be spent.


Through the implementation of Secure 2.0’s PLESA provision, companies now have the option to create an emergency savings sidecar tied directly to participant retirement accounts. Non-highly compensated employees can save up to $2,500, using after-tax dollars. After the employee’s principal balance in the sidecar emergency savings account reaches $2,500, the law allows the additional contributions to be directed to the retirement plan.8


Having an emergency savings account funded by payroll deductions can go a long way in reducing financial stress for the employee, and therefore the employer. We are seeing this same kind of progress and success with the adoption of automatic features. At PCI, we advocate that implementing this provision into the retirement plan will be a significant benefit to participants in those plans.


Let’s briefly highlight some of the advantages of emergency savings within 401(k)s and why this new provision just makes perfect sense.


  1. Popularity of 401(k)s.
    Retirement plans are widely available and highly utilized. The 401(k) is rapidly becoming the most popular benefit offered to employees. According to the American Legion, more than 90% of large companies now offer one.9


  1. Infrastructure is already in place.
    The administration and recordkeeping platforms are already well-established to handle employee contributions. No new systems need to be created to execute this function – saving time and money.


  1. Payroll Deductions.
    One of the great benefits of the retirement plan is payroll deductions. Payroll deductions happening in the background will keep workers saving.


  1. Automatic Enrollment.
    Employers can elect to automatically enroll participants into this account at rates up to 3%. Once your employee reaches $2,500 in the emergency savings account, any additional deductions will be directed into the retirement plan. Plus, there’s an additional bonus to the employee if the employer has a match structure in place.


  1. Subject to fiduciary oversight and ERISA scrutiny.
    Like all qualified retirement plans, these kinds of accounts will be held to a fiduciary standard of care and be under the jurisdiction of ERISA. This kind of oversight is likely to lead to a greater chance of adoption success.
Should You Adopt Emergency Savings into Your Plan?

For fiduciary committees, choosing to implement this provision is a worthy endeavor that addresses short-term financial needs, and ultimately addresses long-term financial needs. It’s a meaningful step forward in retirement plans to help make a difference for the workforce. Investing in your employees’ financial security is an investment that ultimately yields positive returns for your entire organization.


PCI believes that the PLESA provision is a step in the right direction toward helping Americans become more financially secure. While it may seem like a small difference, it can make a huge impact in helping your workers.


We will be exploring the benefits of PLESA and emergency savings more in the coming weeks. Join our mailing list to stay up to date on the latest fiduciary insights.

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    1) PricewaterhouseCoopers. “2023 PwC Employee Financial Wellness Survey,” https://www.pwc.com/us/en/services/consulting/business-transformation/library/employee-financial-wellness-survey.html. PricewaterhouseCoopers. Accessed Feb 8 2024.

  • 2) Egan, Jon and Whiteman, Jon. “Financial Security In America In 2023: Insights And Key Findings.” Forbes. 16 Aug 2023. https://www.forbes.com/advisor/banking/financial-security-in-america/. Accessed Feb 8 2024.

  • 3) Hirleman, Stephanie. “Majority of Americans feeling financially stressed and living paycheck to paycheck according to CNBC Your Money Survey.” 7 Sep 2023 CNBC. https://www.forbes.com/advisor/banking/financial-security-in-america/. Accessed Feb 8 2024.

  • 4) Caroline Ratcliffe, Brianna Middlewood, Melissa Knoll, Misha Davies, and Grant Guillory. “Emergency Savings and Financial Security Insights from the Making Ends Meet Survey and Consumer Credit Panel.” Consumer Financial Protection Bureau. Jan 2022. https://files.consumerfinance.gov/f/documents/cfpb_mem_emergency-savings-financial-security_report_2022-3.pdf. Accessed Feb 8 2024.

  • 5) Allen, Brian and Pinkston, Jay. “401(k) effective and achievable method to improve employees’ financial security.” Pension Consultants, Inc. 25 Apr 2023. https://pension-consultants.com/wp-content/uploads/2023/10/401k-effective-and-achievable-method-to-improve-employees-financial-security.pdf. Accessed Feb 8 2024.

  • 6) Menton, Jessica. “Worried about your financial security? Here’s how to cope with a job loss spurred by COVID-19.” USA Today. 27 Jan 2021. https://www.usatoday.com/story/money/personalfinance/2021/01/27/unemployment-benefits-how-cope-job-loss-spurred-covid-19/6675709002/. Accessed Feb 8 2024.

  • 7) Gillespie, Lane. “Bankrate’s Annual Emergency Fund Report.” Bankrate. 24 Jan 2024. www.bankrate.com/banking/savings/emergency-savings-report/. Accessed 8 Feb 2024.

  • 8) U.S. Department of Labor. “FAQs: Pension-Linked Emergency Savings Accounts.” U.S. Department of Labor. www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/faqs/pension-linked-emergency-savings-accounts. Accessed 26 Jan. 2024.

  • 9) Crescendo via American Legion. “401(k) retirement plans growing in popularity” American Legion. 3 Nov 2023. https://www.legion.org/plannedgiving/260413/401k-retirement-plans-growing-popularity. Accessed 26 Jan. 2024.

  • Pension Consultants, Inc. is registered with the U.S. Securities and Exchange Commission as an investment adviser, located at 300 S. Campbell Ave., Springfield MO, 65806. For questions or more information contact us at 417.889.4918.


Pension Consultants, Inc.



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