The federal spending bill could make it easier to save for emergencies
The federal spending bill could make it easier to save for emergencies
The Senate passed a massive federal spending bill Thursday to keep the government funded and prevent a shutdown just before Christmas. Included in the $1.7 trillion package is a provision designed to make it easier for people to save for emergencies.
If it becomes law, employers would be allowed to automatically enroll workers in an emergency savings account alongside their retirement plan.
It’s no secret that a lot of people in this country struggle to save money.
“Only about 1 in 4 American households has an adequate emergency savings cushion, enough to cover at least six months’ worth of expenses,” said Greg McBride at Bankrate.
Most people aren’t saving enough for retirement either, he said. And even when they are, “in times of hardship, too often people raid the retirement account. But that comes at a high cost because you’re going to pay taxes on the withdrawal.”
The changes in the bill would allow employers that offer a retirement plan to also offer a separate emergency savings plan.
“They’d be little savings accounts that are capped at $2,500,” said Monique Morrissey at the Economic Policy Institute.
A lot of people, especially low-income workers, don’t get a 401(k) through their employer at all.
But for those who do, “the purpose is to ensure that people who may not participate in 401(k)s, because they’re afraid of not having access to funds that they need for emergencies, can save and be sure that they can take out the money without paying a penalty,” Morrissey said.
Any contributions over the $2,500 limit could roll over into a worker’s retirement account, per Shai Akabas at the Bipartisan Policy Center.
“So the whole goal here is to help people with all of their savings needs at the same time,” he said — both emergencies in the short term and longer-term needs like retirement.
“We have a really strong evidence base that when people are automatically enrolled into retirement accounts, far higher numbers stay in those accounts and end up contributing,” Akabas said.
And he said that’s likely to be true for emergency funds too.
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