This is the first blog in a series by Jamie Kalamarides, Senior Fellow at Prosperity Now and former President of Prudential’s Group Insurance and head of 401k business, that will focus on the role of employee benefits in closing the racial wealth divide.  

I was still in school, and my wife was home in her third trimester with our second child, when the car desperately needed four new tires. Yet our budget was tight, and our credit cards were approaching their limits. We were liquid asset poor — meaning, we lacked access to emergency savings to help us live even at the federal poverty level for three months. 

Before the COVID pandemic, four of every ten U.S. households were liquid asset poor and among Black and Latino families six of every ten. Moreover, close to 40 million U.S. households, had no savings at all and were only one emergency away from falling into financial crisis. During the pandemic, Congress helped families combat poverty with the paycheck protection program, the child tax credit, and temporary paid family and medical leave. All of these have now expired, and families still lack enough emergency savings to respond to unexpected financial emergencies. 

To discuss the causes of—and potential solutions for—emergency savings, the U.S. Senate Health, Education, Labor and Pensions Committee will hold a hearing on emergency savings on Tuesday, March 29 at 10 am.  

Prosperity Now is a leader in emergency savings, reporting on liquid asset poverty in the Prosperity Now Scorecard for more than a decade, assessing the Landscape of Saving Solutions for Low-Income Families, and designing and piloting a workplace-based emergency savings program. Most recently, Prosperity Now also partnered with Wells Fargo to “support community-based organizations expanding their own emergency matched-savings programs."  

We have learned lessons from this work studying liquid asset poverty and emergency savings solutions, and have specific recommendations for this hearing. 

First, we know that the widespread lack of emergency savings is not a result of individual choices. Rather, a complex set of challenges caused it, including unpredictable work schedules, a widening gap between state minimum wages and the cost of living, slow changes in real earnings, 25% of families being unbanked/underbanked, and a “flawed set of policies that penalize low-income families for saving.” 

Second, to support families in developing emergency savings, I am calling on Congress to act on the following two bipartisan bills: 

The Refund to Rainy Day Savers Act (S. 2600/H. 4986) 

Sponsored by Senators Cory Booker (D-NJ) and Todd Young (R-IN), and Representatives Bonnie Watson Coleman (D-NJ) and French Hill (R-AR), the Refund to Rainy Day Savings Act allows those receiving a tax refund to opt into deferring 20% of their refund for six months and accrue interest. This concept is based in part on Prosperity Now’s ETIC Rainy Day Proposal. 

The Strengthening Financial Security Through Short-Term Savings Plans Act (S. 2601) 

Senators Booker and Young also are sponsoring a bill to allow automatic enrollment in workplace-based emergency savings plans — either via a standalone FDIC-insured account or a retirement plan.  

Let me explain the latter.  

Working with Prosperity Now, Prudential designed a savings program that enables participants to easily deploy a portion of their 401k deferral into an after-tax account that is already part of most plans. When the participants need access to their savings, they can withdraw cash, tax-free, without taking out a loan. Moreover, employees can continue contributing to their retirement savings and fill their emergency savings accounts in their next paycheck.  

The Strengthening Financial Security Through Short-Term Savings Plans Act would enable employers to automatically enroll employees in such savings programs, with opt-out — just as they do for retirement plans.  The benefits are clear — automatic enrollment with paycheck deductions, investments in institutional priced savings funds with federal consumer protection, no withdrawal costs or penalties, and the ability to leverage the 401k platform to lower administration expenses. 

The bill would also offer matched savings incentives for pilot participants of up to $400. 

The CFPB has even created a compliance framework for a pilot. 

As a member of the Prosperity Now community and network, you know the importance of emergency savings.  I encourage you to write to your legislator to support these two bills here.  

To learn more, read Prosperity Now’s policy brief here.