CFPB opens the doors to auto-enroll employees in savings programs
A Q&A with Jason Ewas, Senior Policy Manager, Commonwealth.
New policy guidance from the Consumer Finance Protection Bureau (CFPB) opens the door for employers to automatically enroll their workers in short-term emergency savings accounts, also known as Autosave. This guidance clarifies what was previously a major barrier to allowing this type of automatic enrollment, and may allow employers to expand their role in addressing the financial security of their workforce.
For employers, this is an opportunity to make enrollment in a savings program as automatic as 401(k) enrollment is; that is, a certain percentage of the employee’s check is deposited into a savings account by default, with certain conditions, and the employee needs to take action to opt out.
Financial insecurity is a pervasive issue–particularly for lower- and moderate-income workers. According to data from the Federal Reserve, 37% of Americans lack $400 in savings for an unexpected emergency, and this is worse in certain groups, such as households making less than $60,000 (52%) and Black households (70%).
The detrimental impact of financial insecurity affects not only individuals and their households, but also the companies for which they work. By one estimate, companies lose $250 billion annually to employee stress, with finances topping the list of stressors. Employers play an important role in helping workers build emergency savings. Data from Commonwealth indicates that 65% of working Americans believe employers should be doing more to help improve financial security.
We sat down with Jason Ewas, senior policy manager at the national nonprofit Commonwealth, to hear more about this policy guidance and what it means for employers. Commonwealth was the driver of this guidance with the CFPB.
This new guidance opens the door for employers to implement an Autosave program. Why is this important to worker financial security?
Now more than ever, we know employers play a critical role in the financial security of workers. At this moment, they have a unique opportunity to develop systems and tools that make it easier to save for emergencies. One promising tool is automatic enrollment and contributions, which has dramatically increased participation rates in retirement accounts. The CFPB’s guidance can bring that tool to liquid savings accounts as well, where it was previously only available for retirement.
Essentially, Autosave opens the possibility for employers to “split deposit” an employee’s pay automatically, with a certain amount going into a savings account each month. The employee then needs to take action to opt out.
Prior to this guidance, there was significant uncertainty about employers’ ability to automatically enroll employees into an emergency savings account. Now, employers have a clearer pathway to design and implement an Autosave program for emergency savings–and become national leaders in the field in the process.
What is the guidance specifically, and what does it mean for employers?
Employers – particularly those looking to take a leadership role in employee financial security — can design an Autosave program and submit a CAST application to the CFPB using Commonwealth’s CAST Template. Once approved, employers would be able to implement a groundbreaking Autosave program that complies with Regulation E.
Put another way, the new policy guidance clarifies Regulation E — which implements the Electronic Funds Transfer Act — to enable employer-based automatic enrollment in and contribution to a liquid savings account, or Autosave. The CFPB CAST Template approval creates a clear process for employers to design and implement an Autosave program.
Employees can often split their paycheck into savings now, depositing a certain amount or percentage of funds each pay period into a savings account. How is this different?
Autosave makes saving automatic–the default choice–for employees. They have to “opt out” of saving a small amount of their paycheck. In contrast, today many employers utilize an opt-in “split deposit” option. Opt-in requires the employee to take action to start saving; Autosave requires them to take action not to split part of their paycheck into savings. We know that, even for employees who want to save, the process of opting in to set up a split deposit and identify a savings account can be a barrier. Fewer than half of LMI households hold traditional savings or money market accounts, with reasons ranging from the availability of the accounts in their communities to the high fees they will pay for not meeting minimum balances.
Most people are familiar with an automatic savings process through their 401(k), which employers automatically enroll you in unless you act to opt out. This policy guidance now opens the door for employers to do the same with liquid savings. For more details, employers can visit our website.
Why is this development important for employers and for workers?
We think the CFPB’s regulatory guidance is a win-win situation for both employers and employees. Short-term savings is an important foundation for financial security. Our research has shown time and again that when people are given access to the right tools and opportunities, they make decisions to improve their financial lives.
Employees want programs like Autosave from their employers. In a Commonwealth study, lower-income employees reported that employer interventions (such as savings tools) at the time of a raise would reduce stress (74%), enhance productivity (62%) and increase the likelihood they stay with the company (76%).
And in an AARP survey, more than 7 in 10 workers said they would be likely to participate in a payroll-deduction rainy day savings program if their employer offered one. The main reasons employees say they would participate are to save more and to reduce stress.
An employer who is ready to submit a CAST application and commit to putting this into practice could boost productivity by providing an effective savings tool for their employees.
What role did Commonwealth play in this new guidance?
As part of Blackrock’s Emergency Saving Initiative, Commonwealth aims to advance public policy that increases access to and use of emergency savings, particularly for people with low to moderate incomes. We recognized early in the process that employer-based Autosave was a key tool in the toolbox, and we wanted to do whatever we could to make it possible. We learned about Regulation E, and worked to create a CAST Template application that would clarify the rule and present an opportunity for employers to test this intervention in the real world.
Commonwealth then submitted the application that received approval for the Compliance Assistance Statement of Terms (CAST) Template from CFPB.
Is Regulation E the only barrier to auto-enrolling employees into savings accounts?
While Regulation E was a significant barrier to employer-based Autosave programs, companies must consider other regulations when establishing Autosave programs. Specifically, federal Know Your Customer (KYC) laws should be taken into account. In some locations, state payroll and wage garnishment laws also need to be addressed when developing an Autosave solution.
Employers interested in an Autosave program can visit this website to learn about the application process. They can also reach out to Commonwealth to discuss potential next steps.
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