SECURE 2.0 and Emergency Savings Relief | Custodian - Millennium Trust Company

Emergency Savings Relief for Financially Stressed Employees

March 7, 2023
By Millennium Trust

Whether it’s inflation, the volatile securities markets or concerns about job security, many Americans are feeling financially stressed. The situation is unlikely to improve soon. According to the latest Bankrate Annual Emergency Fund Report, 74% of those surveyed said they now save less due to financial concerns.

The survey found anxiety is the highest among Gen Z consumers with 85% of them worried that if they lost their primary source of income, wouldn’t be able to cover a month of living expenses. The concern is somewhat lower when averaged across all generations, at 68%.

For employers of all sizes, this can result in many distracted and distressed workers, a situation that can erode productivity. However, the SECURE 2.0 Act of 2022 creates new savings tools to help lower that stress.

New financial wellness options

In late 2022, the SECURE 2.0 Act was enacted to, among other things, help improve how Americans save. Many of the changes are intended to strengthen the retirement system. But SECURE 2.0 also creates a new  opportunity for plan sponsors to include emergency savings account options within their benefit programs.

Starting in 2024, employers will have two new ways to allow participants access to funds in case of an emergency..

Why providing access to emergency savings accounts helps

Many employees are already saving for specific goals and future expenses through their employer plans. Whether automatically enrolled in 401(k)s and other retirement savings solutions or participating in Flexible Spending and Health Savings Account options, they are increasingly more comfortable allocating a portion of each paycheck to meet future needs. Having similar options to create a “rainy day” fund for emergencies makes sense.

This type of program is also practical for employers. A recent Betterment survey found access to a workplace emergency fund is among the most desirable benefits for job seekers. Yet only 8% of employers currently offer them.

How emergency savings accounts will work under Secure 2.0

Some employers already provide access to an emergency savings fund program through automatic payroll deductions on an after-tax basis. The money is directed into an account held by an external provider, like a bank or a company like Millennium Trust.

The SECURE 2.0 Act takes this a step further. It enables employers to add an emergency savings account program to their retirement plans starting in 2024. When used this way, the emergency savings account becomes a “sidecar” to the retirement plan and opens the door to automatic enrollment and matching contributions.

Here are some of the guidelines for how these sidecars are expected to function.

  • Only the participant can contribute to the sidecar account and only on an after-tax basis. 
  • The money contributed to these accounts is restricted to investment in principal-protected assets.
  • Employee contributions to an emergency savings account must be eligible for the same matching contributions that apply for elective deferrals.. But the amount matched will be contributed to the participant’s retirement account not to the sidecar account.
  • Earnings on the accounts will not count toward the $2,500 maximum balance. Though the ceiling on contributions will likely adjust annually for inflation.
  • Participation in the sidecar option is not available to highly compensated employees.
  • Automatic deductions are limited to 3% of income, and participants must be allowed to make withdrawals at least monthly.

Once emergency savings balances reach their limit, any additional participant contributions will go into the associated retirement account. Assuming the retirement account is not a Roth account, any excess contributions will need to be reclassified from occurring on an after-tax basis to pre-tax. This may require adjustments to existing payroll and accounting software.

A second option under SECURE 2.0

SECURE 2.0 also offers plan sponsors a second option to help employees pay for unexpected expenses and minimize the potential damage to their retirement accounts. The legislation allows plan participants to withdraw up to $1,000 each year for emergencies, which are defined as unforeseen immediate financial needs relating to personal or family emergency expenses, from their retirement accounts with less restrictions than a hardship loan.

Participants would need to repay the $1,000 within three years before they could withdraw again. Repayment through ordinary deferrals is allowed along with self-certification that the money is used for an emergency. Unlike a hardship loan, the amount withdrawn would not have to match the amount of the expense.

Our Emergency Savings Fund pros can get you started

You need an emergency savings solution that is easy to implement and manage. Millennium Trust has a workplace benefit solution, with minimal cost and administrative burden. Learn more about our current Emergency Savings Fund Program for employers.



The material in this Blog is presented for informational purposes only. The information presented is not investment, legal, tax or compliance advice. Millennium Trust Company performs the duties of a directed custodian, and as such does not offer or sell investments or provide investment, legal, or tax advice.

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