Job loss, health emergencies or a fall in income can destabilize households, and having a backup can mean the difference between keeping a roof overhead and facing crushing debt or bankruptcy. Such financial jolts also force workers to make premature withdrawals from retirement accounts, incurring penalties and taxes and hurting their long-range retirement prospects.
There is growing consensus in Washington that the inability of many American families to cope with economic blows is a serious problem that needs fixing. The most efficient, robust solution would be to strengthen our key social insurance programs: Social Security, health insurance and unemployment insurance.
But we do not have national political consensus to do that - and insurance cannot address every emergency spending need. So support in Congress is coalescing around a different, more modest approach: make it easier for workers to set aside savings to meet short-term needs through payroll deductions.
The Strengthening Financial Security Through Short-Term Savings Plans Act is part of a package of proposals aimed at improving retirement security that is making its way through the legislative process. The bills have garnered bipartisan support, and also include provisions that would make it easier for small business owners to band together to offer professionally managed, pooled employer saving plans, along with some refinements of the existing 401(k) and savings system.
The short-term savings bill would permit employers to automatically enroll workers for accounts that deduct small amounts from pay into special savings accounts. These could be standalone accounts at banks or credit unions, or so-called sidecar accounts alongside 401(k)s. But in contrast to retirement accounts, funds in these accounts would always be readily accessible.
The Aspen Institute is one of several nonpartisan think tanks that have been working to shine a light on the importance of shoring up household resilience to financial shocks. “I see this bill as a signal of growing bipartisan recognition of the importance of addressing a wider range of the financial challenges that families are coping with,” Ida Rademacher, executive director of the organization’s financial security program, told me in an interview. “It also reflects the importance of leveraging the workplace as key delivery channel for savings.”