Building Emergency Savings Through Employer-Sponsored Rainy-Day Savings Accounts

72 Pages Posted: 3 Dec 2019 Last revised: 27 Nov 2021

See all articles by John Beshears

John Beshears

Harvard University - Business School (HBS); National Bureau of Economic Research (NBER)

James J. Choi

Yale School of Management; National Bureau of Economic Research (NBER)

Mark Iwry

Brookings Institution

David John

AARP Public Policy Institute; NASI

David Laibson

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Brigitte C. Madrian

Brigham Young University Marriott School of Business; National Bureau of Economic Research (NBER)

Date Written: November 2019

Abstract

Many Americans live paycheck to paycheck, carry revolving credit balances, and have little liquidity to absorb financial shocks. One consequence of this financial vulnerability is that many individuals use a portion of their retirement savings during their working years. For every $1 that flows into 401(k)s and similar accounts, between 30¢ and 40¢ leaks out before retirement (Argento, Bryant, and Sabelhaus 2015). We explore the practical considerations and challenges associated with helping households accumulate liquid savings that can be deployed when urgent pre-retirement needs arise. Automatically enrolling workers into an employer-sponsored “rainy-day” or “emergency” savings account—terms that we use interchangeably in this paper—funded by payroll deduction could be a cost-effective way to achieve this goal. We explore three specific implementation options: (a) after-tax employee 401(k) accounts; (b) deemed Roth IRAs under a 401(k) plan; and (c) depository institution accounts. We evaluate the pros and cons of each approach and conclude that all three approaches merit exploration and field testing.

Suggested Citation

Beshears, John and Choi, James J. and Iwry, Mark and John, David and Laibson, David I. and Madrian, Brigitte C., Building Emergency Savings Through Employer-Sponsored Rainy-Day Savings Accounts (November 2019). NBER Working Paper No. w26498, Available at SSRN: https://ssrn.com/abstract=3496476

John Beshears (Contact Author)

Harvard University - Business School (HBS) ( email )

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National Bureau of Economic Research (NBER) ( email )

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James J. Choi

Yale School of Management ( email )

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Mark Iwry

Brookings Institution ( email )

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David John

AARP Public Policy Institute ( email )

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NASI ( email )

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David I. Laibson

Harvard University - Department of Economics ( email )

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National Bureau of Economic Research (NBER) ( email )

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Brigitte C. Madrian

Brigham Young University Marriott School of Business ( email )

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United States

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
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