Financial Forecast: Rainy Days


The disruptions of recent years have underscored the necessity of setting aside emergency savings, and one of the measures in SECURE 2.0 allows employees to do so within the company sponsored retirement plan. Plan sponsors are encouraged to explore the possibility.


Emergency Savings Within The 401k

Saving “for a rainy day” has always made sense, and of late, unpredictable challenges have reminded us just how critical emergency funds turn out to be. The pandemic and rising costs of living have found more employees carrying their financial worries into the workday. In fact, research has shown that because employees are increasingly concerned about financial wellbeing, they are eager for more guidance from qualified financial advisors, the latest educational resources, and effective online planning tools. In response, employers have been steadily working to offer greater access to professional financial advice and education, via the services of retirement plans.

 As Benefits Pro reminds us, SECURE 2.0, the massive federal legislation passed in 2022, “allows plan sponsors to offer an emergency savings account inside of a 401(k) plan with a maximum account balance of $2,500 for non-highly compensated employees.” Pointing out that “an in-plan emergency savings account will encourage more employees to set money aside for unanticipated expenses, especially if it is paired with automatic enrollment,” experts encourage plan sponsors to explore the option with plan advisors and administrators, noting: “No one can reasonably debate the need for emergency savings. At a minimum, we think plan sponsors should consider offering employee education on the subject.” Reminders about the importance of emergency savings come on the heels of new research from the Employee Benefit Research Institute (EBRI) and J.P. Morgan Asset Management, which found that9 in 10 of the households studied faced at least one spending spike each year that could not be covered by their income.”  Additionally: “More than 1 in 3 households could not cover their increased spending needs with their current income and reserves of cash.”

 Not surprisingly, the research shows that when faced with financial difficulties, employees often resort to borrowing from their retirement plans and racking up credit card bills—neither of which tends to turn out well over the long haul. Summarizing the EBRI/JP Morgan study, Thomas Gresham shares:

 The research should resonate with plan sponsors as they consider the links between financial wellness and retirement readiness….“The research reaffirms the importance of focusing on actual participant behaviors and the potential for cash flow volatility in defined contribution plans.” In addition, the report said, “Emergency savings is a necessity for everyone. Households without an adequate cash buffer take on debt, become financially more vulnerable and find themselves at risk of not achieving a successful retirement outcome.”

 “The report makes it clear that plan sponsors need to take into account participant behavior and spending volatility when designing their Qualified Default Investment Alternative (QDIA) offering,” said Sharon Carson, retirement strategist at J.P. Morgan Asset Management. “The research also highlights the importance of sponsors keeping in mind that ‘leakage’ from plan accounts through 401(k) loans and withdrawals can have outsized effects on retirement readiness.”


Prep Steps

Although ERISA law does not require plan sponsors to continuously seek, find and operationalize every innovation that comes along, it is of course useful for plan sponsors to be open to new ways to benefit participants and be alert for opportunities to increase their well-being.While assessing the feasibility of new plan services, it is best practice (and very wise) for sponsors to also revisit risk management plans, ensuring all necessary coverage is in place and up to date. Remember, national expert, Colonial Surety is here to help. Just select an affordable, package and receive this three point coverage solution in minutes:

  1. The ERISA bond required to protect the assets of the retirement plan from theft.
  2. Fiduciary Liability Recovery to protect you and your assets from personal liability.
  3. Cyber Liability coverage to safeguard your company and plan from covered losses and expenses in the event of a cyber breach.

Obtain or Update Your ERISA Coverage  Package HERE


In today’s litigious environment, the responsibilities inherent with an employer sponsored retirement plan make Fiduciary Liability Insurance a must-have for sponsors. At Colonial, for a few dollars a day, you’ll have coverage for defense costs and penalty limits up to $1,000,000 if faced with alleged or actual breaches of duty in connection with the employee retirement plan. Cyber Liability coverage is included at no extra cost, providing additional protection against regulatory actions related to data and privacy, as well as expert response services.


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Colonial Surety was founded in 1930 and continues giving customers the assurance that they, their businesses, and their clients are safeguarded with the right surety and insurance products at all times. We are a direct and digital insurer offering products through an online platform supported with exemplary customer service. We give customers a simple, direct, and instant service that takes the pain out of buying insurance and bonds. Colonial Surety is licensed in every state in the U.S., rated “A” Excellent by A.M. Best, and listed by the U.S. Treasury as an approved surety.