As America Saves Week kicks off Feb. 25, Prudential Financial, Inc. (NYSE: PRU) is calling on employers to consider adding an after-tax emergency savings feature to their 401(k) plans to help workers save for unexpected expenses.
āOne missed paycheck, or even an unexpected car repair, can create real financial hardship for Americans.ā – Phil Waldeck, Prudential Retirement (Photo: Business Wire)
The partial government shutdown earlier this year put a national spotlight on the need for emergency savings as nearly half of affected federal workers fell behind in paying bills and 83 percent reported higher overall stress levels, a 2019 Prudential survey1 found. Coupled with earlier research2 that found most Americans cannot handle a $500 emergency, the benefits of an emergency savings feature are clear.
āOne missed paycheck, or even an unexpected car repair, can create real financial hardship for Americans,ā said Phil Waldeck, president of Prudential Retirement. āThere is a real opportunity at the workplace to not only address Americansā long-term savings needs, but also their short-term savings challenges. And weāre finding that after-tax contributions within the 401(k) plan can help solve this challenge without compromising retirement savings.ā
Just 26 percent of Americans are on track toward building an emergency savings account, Prudentialās 2018 Financial Wellness Census found. Certain population segments are particularly vulnerable. For example, as Military Saves Week coincides with America Saves Week, Prudentialās census found just 15 percent of millennial and Gen X veterans are on track toward building an emergency savings account.
After-tax contributions are the least used of the three retirement savings options available to most private sector workers, including before-tax contributions and a Roth 401(k) option. Just 14.6 percent of employers offer an after-tax savings option within their 401(k) plan, according to 2016 Plan Sponsor Council of America data.
Recognizing this need, Prudential Retirement in 2018 introduced an emergency savings feature for workplace 401(k) plans to provide employees the opportunity to make after-tax payroll contributions alongside before-tax contributions.
The feature allows employees to withdraw their after-tax savings if an emergency arises, while preserving the before-tax retirement contributions.
Any earnings that are withdrawn are subject to taxation as well as a 10% premature distribution tax, if withdrawn before age 59 Ā½.
Prudential has offered its own employees an after-tax savings feature through its 401(k) plan for many years, along with before-tax and Roth 401(k) contribution options.
āWe are committed to providing a highly competitive benefits package that enhances the well-being of our employees. Financial wellness is an essential part of this,ā said Andy Gregg, vice president, employee benefits at Prudential. āWe recognize that our employees have diverse savings challenges, which is why we offer a savings plan with flexible options, including the after-tax option.ā
Savings is critical to financial wellness
A part of Prudential Retirementās holistic financial wellness offerings, the emergency savings feature gives workers an alternative to savings and investment accounts outside the workplace. It also helps stop the drain on pre-tax retirement contributions. Linking emergency savings to an employer-sponsored retirement plan provides other benefits such as no minimum account balance and lower investment fees than a worker might pay at a brokerage.
About Prudential Retirement
Prudential Retirement delivers retirement plan solutions for public, private, and non-profit organizations. Services include defined contribution, defined benefit and non-qualified deferred compensation record keeping, adm