For more stories like this, sign up for the PLANSPONSOR NEWSDash daily newsletter.
Benefits July 27, 2026
Emergency, Retirement Savings Can Coexist
Studies find short-term savings can be a gateway—not an impediment—to long-term savings.
The dilemma of how to deploy the next available dollar may suggest emergency and retirement savings accounts compete with one another, but recent research suggests the two can—and should—coexist.
The “BlackRock Emergency Savings Initiative Impact Report,” published last month by the BlackRock Foundation, in partnership with Commonwealth, stated that nearly 40% of U.S. adults remain unable to cover an unexpected $400 expense using cash, savings or a credit card paid off at the next statement. Vestwell’s 2026 Saver Survey also pointed to a major issue beneath the surface: 32% of U.S. adults said their lack of emergency savings was preventing them from saving more for retirement.
Yet employers may hold the keys to improving both measures.
“If emergency savings help with retirement savings, then leveraging access points [to emergency savings] can further build out the on-ramp to retirement security,” says Nick Maynard, Commonwealth’s senior vice president.
People who have some kind of emergency savings are 70% more likely to contribute to their defined contribution plan than those without a reserve fund, according to the BlackRock/Commonwealth report. Among workers earning low and moderate incomes—defined as anyone with a total household income less than $80,000 per year—64% said they would save more for retirement if they had an emergency savings fund set aside, the report found. Nearly one-third of that group said they would start or increase retirement contributions if their employer offered them the option to pair it with emergency savings.
Across all income levels, 20% of workers who were not saving for retirement before opening an emergency savings account began contributing once they did so, the study found. Some 52% of workers did so promptly, within four months of opening their emergency savings account. Over a nine-month period the firms studied, emergency savings drove an additional $3.5 million in new retirement contributions.
“Emergency savings is not a separate benefit category. … It is part of the retirement readiness equation,” Vestwell’s report stated.
Despite efforts by legislators, employers, fintech companies and financial institutions, the momentum supporting retirement savings has not improved the emergency savings situation for everyone. Recent data from the Federal Reserve’s Survey of Household Economics and Decisionmaking showed only 55% of U.S. adults reported having three months’ worth of emergency savings last year, down from 59% in 2021, which was the highest figure between 2015 and 2025.
To help employees afford short-term expenses without sacrificing their long-term goals, the BlackRock/Commonwealth report recommended employers target key moments, such as open enrollment and pay raises, to encourage people to start saving, consider both in-plan and out-of-plan solutions, and make auto-enrollment into emergency savings accounts the standard.
Congressional Momentum
Since enactment of the SECURE 2.0 Act of 2022, employers are allowed to offer their workers two avenues for managing unplanned expenses within defined contribution plans: (1) a limited, penalty-free emergency expense withdrawal of up to $1,000; and (2) a pension-linked emergency savings account that allows those not classified as highly compensated employees to build a balance of up to $2,500 (indexed annually), with penalty-free withdrawals, employer matches and the option of automatic enrollment, when permitted by the plan.
When T. Rowe Price Group Inc. launched a targeted communication about the $1,000 emergency withdrawal provision to eligible employees who were not participating in a retirement plan, it resulted in more than 100 first-time enrollments into the retirement plan within a month of the communication, the BlackRock/Commonwealth report stated. The provision has been particularly effective for employers with high concentrations of workers living on low and moderate incomes and those that have lower retirement plan participation rates.
To maximize the effectiveness of the provision, BlackRock recommended employers give the following support to employees:
- Explain that the provision is intended to address genuine emergencies without undermining retirement goals;
- Clarify limits and frequency of use;
- Plan messaging about it to coincide with new-hire onboarding, open enrollment and other key windows; and
- Use concise, plain-language reminders in enrollment processes and open-enrollment materials.
Employer adoption of PLESAs has been slower than of the $1,000 emergency withdrawal provision, likely because recordkeepers cite significant complexity in building the required technology to add it to their platforms, according to the BlackRock/Commonwealth report. The Emergency Savings Enhancement Act of 2025, introduced last December by Senators Cory Booker, D-New Jersey, and Todd Young, R-Indiana, would raise the PLESA contribution limit to $5,000 and remove the highly compensated employee exclusion to simplify implementation for recordkeepers. The bill is scheduled to be heard before the Senate Committee on Health, Education, Labor and Pensions on July 30.
With auto-enrollment already driving positive saving behaviors for retirement, employers could implement auto-enrollment for workplace emergency savings programs such as PLESAs, while offering “simple opt-out mechanisms and clear, transparent communications,” the BlackRock/Commonwealth report suggested.
In-Plan vs. Out-of-Plan
Aside from offering emergency savings solutions built into an existing retirement plan, employers can also offer out-of-plan solutions, typically sold by financial institutions, fintech companies and payroll providers.
Commonwealth’s Maynard says an employer’s decision as to which emergency savings tool to offer is “not necessarily an either/or.” In-plan solutions “run on existing technology and payroll plumbing” and can be easier for employers to implement, Maynard says.
On the other hand, research has shown out-of-plan solutions can launch faster, incorporate engaging product features and allow for portability between employers.
The BlackRock/Commonwealth report offered an example of a successful out-of-plan solution, the Fidelity Goal Booster, which—despite being offered out-of-plan—uses payroll integration to help employees set and work toward their emergency savings goals. The solution is available to Fidelity Workplace participants and those with Fidelity retail accounts.
After Starbucks used Fidelity Goal Booster to deploy its own emergency savings solution, Starbucks employees using Goal Booster made retirement plan contributions at rates almost triple those of nonsavers. The coffee giant saw positive employee retention rates among savers, as well: Those enrolled stayed at Starbucks for a median of nine months longer than those who were not enrolled.
When a Trade-Off Is Necessary
Rebecca Liebman, CEO of financial wellness program provider LearnLux Inc., says that while emergency and retirement savings should coexist, competition can still be a reality.
Data from LearnLux’s 2026 “Financial Wellbeing in the Workplace Report” showed that more than one-third of U.S. workers cited saving for retirement (36%) and paying unexpected expenses (32%) as “major” financial stressors. Relatedly, workers ranked preparing for retirement (56%) and building emergency savings (36%) among their five most important financial goals.
If an employee is contributing only to their retirement savings and must make a trade-off to build their emergency reserves, Liebman suggests they temporarily pull back on the retirement side.
“The peace of mind and mental well-being that come with emergency savings allow employees to do everything from sleeping better at night to being more careful on the job,” Liebman says. “[LearnLux] has seen that when [employees] are under financial stress, [they] are more likely to get injured at work.”
Plan sponsors should offer “holistic financial planning” to their employees, Liebman suggest, not just retirement-focused benefits. In her eyes, having an emergency fund is “important as the foundation of any financial plan.”
According to the TIAA Institute’s “Bridging the Gaps in Retirement Expectations” report, released in July, U.S. workers named “having enough money to cover an unexpected expense or financial emergency” as the top (62%) milestone they want to achieve before retiring, ahead of other critical tasks such as settling nonmortgage debts (43%), securing adequate health insurance (41%) and paying off a mortgage (39%). Women (67%) were more likely than men (58%) to prioritize building a safety net for the unexpected.
“Before we even start talking about retirement savings, this whole idea of having emergency savings is critically important and oftentimes overlooked,” says Tim Pitney, TIAA’s head of lifetime income distribution.
To avoid overlooking emergency savings, Commonwealth’s Maynard likes to connect emergency savings to retirement decumulation.
While providers have introduced a multitude of solutions to help participants generate retirement income via defined contribution plans, Maynard suggests employees focus on the basics.
“If you don’t save enough for retirement, then the retirement income conversation is kind of a moot point,” Maynard says. “Emergency savings links to retirement savings links to retirement income.”
