How Employers Can Use SECURE Act 2.0 to Help Employees Build Emergency Savings

Posted on: August 30, 2023

In recent years, employers have expanded the types of benefits they offer in an attempt to address their employees’ concerns and gain a recruitment and retention edge in a tight labor market. With housing costs and interest rates on the rise in recent years and federal student loans headed back into repayment for the first time since March 2020, there’s a new form of financial relief available to those who may find themselves in need of emergency funds.

Many employees lack the savings to handle a financial crisis: A 2022 study by the Consumer Financial Protection Bureau shows that 24% of employees have no money at all for an emergency expense, while 39% have less than one month of income saved.1

Employees’ Emergency Savings


Have No Emergency Savings


Have <1 Month of Income Saved

2022 Consumer Financial Protection Bureau Research

The Setting Every Community Up for Retirement Enhancement (SECURE) Act 2.0 added 92 new provisions to the SECURE Act of 2019, which was established to improve retirement savings opportunities, offer greater flexibility to employees in saving for retirement, and create incentives for employers. It also allows employers to assist employees with other financial needs.

SECURE Act 2.0 Helps Any Employee in Need of Emergency Funds

Section 127 of SECURE Act 2.0 outlined the requirements for employers who set up optional linked emergency savings accounts for their employees starting in plan year 2024. The provision specifies that employers can allow participants who are considered non-highly compensated employees to make after-tax contributions up to $2,500 to an account as part of their qualifying retirement plan.2

Section 127 specifies these requirements for employers who set up an emergency savings plan:

  • There is no minimum contribution or account balance requirement.
  • Assets are held in cash, an interest-bearing account, or an investment offered by a state or federally regulated financial organization designed to provide a reasonable rate of return.
  • Plan participants can withdraw funds from the account at least once each month at no cost for the first four withdrawals and are charged a reasonable fee for subsequent withdrawals.3

Employers may auto-enroll employees at a rate of up to 3% of their pay into emergency savings account; employees can opt out. Employees can also choose to contribute to emergency savings account and retirement accounts concurrently, with any amount exceeding $2,500 going into a Roth account. Employers, however, can’t contribute directly into the emergency savings account. If the employer offers a match, the match goes into the employee’s retirement account.2

There’s another change related to emergency savings and retirement accounts from SECURE Act 2.0. Early withdrawals from tax-preferred retirement accounts for emergency expenses have typically been taxed an additional 10%. Beginning in 2024, one emergency withdrawal is allowed each year of up to $1,000 without penalty, and the plan participant can opt to repay the distribution within three years. No other emergency withdrawals can be made during that time. An employee’s written notice to the employer that they have a qualifying personal or family emergency is all that’s needed to make a withdrawal.2

How Employers Can Adjust Their Retirement Plan

It’s fairly simple for employers to implement SECURE Act 2.0 by amending their retirement plan and documents to add a linked emergency savings account to their retirement plan. Employers who may not have the bandwidth due to staffing shortages or the need to focus instead on instituting other mandatory changes resulting from SECURE Act 2.0 may find it helpful to seek assistance with fund administration from benefits administrators like BenefitEd.

BenefitEd is a joint venture of Nelnet and Ameritas, drawing on Nelnet’s payment processing expertise and Ameritas’ decades of experience in the distribution and management of employee benefits. We’re here to help employers provide meaningful benefits that help them attract, assist, engage, and retain a productive, educated workforce.

Consider the Importance of Being There for Employees Now

Using SECURE Act 2.0 is a simple way to support employees by reducing their stress on the job and at home – making them more productive, more loyal to an employer, and easier to retain. For employers whose employees span a broad range of generations, offering a linked emergency savings account is a benefit that will appeal to employees of all ages and stages of life. Today’s employees are savvy, and the last few years have shown us that employees weigh benefits when considering the best work environment for their overall physical, emotional, and financial well-being.

To learn more about how BenefitEd can support you in adapting your retirement benefits to Section 127 and other SECURE Act 2.0 provisions – or to explore our comprehensive suite of employee benefits, contact us today.