SECURE 2.0 opens up 2 new savings options for low-income workers in 2024

Fall is an exciting time for those of us in the benefits community. Apart from new hire onboarding, it may be the only time of year when workers are focused on their benefits, prompted by carefully crafted messages about open enrollment.

But as delighted as HR professionals may be to see increased engagement with their companies’ retirement and health insurance plans, they need to confront a hard truth: for many low- and moderate-income (LMI) workers, cost is a prohibitive barrier to participating in these plans at all. The employee health premium may not be affordable for these families, while many LMI workers may not be able to afford a retirement contribution to trigger the employer match.

In a typical year, 25-40% of private sector LMI workers do not participate or enroll in these benefits, citing insufficient financial resources. In 2023, the challenge is magnified in light of ongoing economic pressures and the resumption of student loan payments–with as many as 40 million Americans responsible for those monthly debt payments once again.

But there is hope on the horizon. Several provisions within the SECURE Act 2.0–a sweeping piece of legislation aimed at improving Americans’ retirement readiness–open up a range of possibilities for supporting employees’ financial health all year round. As a result, these employees may be able to free up critical resources to overcome the benefits participation hurdle.

The promise of SECURE 2.0

While many of SECURE 2.0’s 90-plus provisions have already gone into effect, it is worth highlighting two that will become official on January 1, 2024, potentially paving the way for more fruitful open enrollment seasons for years to come:

• Matching contributions for student loan repayments: Employers will be able to treat qualified student loan payments in the same way they would treat retirement plan contributions for the purposes of offering a match. In other words, employers can make a contribution to an employee’s retirement account based on the amount they pay toward their student loan balance. One of the age-old questions in personal financial management is whether one should prioritize paying down debt or saving for the future. In this way, employees don’t have to choose. Of note, the current administration has been rolling out student loan relief packages, which can help ease the burden for many. But these programs tend to address certain subsets of borrowers, leaving many–especially those with private loans–still on the hook for significant sums.
• Emergency savings accounts: Plan sponsors will be able to offer non-highly compensated employees a savings account linked to their retirement account. Employees would contribute to these accounts on a Roth basis and have the opportunity to make withdrawals as often as monthly. When an employee is living paycheck to paycheck, a medical emergency or unexpected car trouble could be make-or-break. Having this emergency cushion available can prevent them from resorting to credit cards, high-interest loans, or even 401(k) loans in order to stay on track toward their financial goals.

While highly valued by employees, benefits such as emergency savings accounts and student loan repayment are each offered in only about 5-10% of companies today. There is clearly more work to do, but this legislation paves the way for real progress.

Reaching LMI workers with targeted support

Working-class people are the backbone of the American economy, and many of us are familiar with the stats about the fragility of their finances. Beyond being the right thing to do, taking care of LMI workers is essential to business resiliency. When workers are under financial stress, they are distracted and less productive. This financial insecurity puts workers and their companies at higher risk.

SECURE 2.0 opens the door for employers to provide much-needed support, but how do you get started? Two key pieces of the puzzle are what we at Lafayette Square call Know Your Workforce and Ask Your Workforce. By looking closely at employee data–both the types of demographic data you have likely already collected through the onboarding process and that which can be gleaned from employee surveys–you can get a better idea of which benefits will actually move the needle for your employees. This is especially important in smaller organizations that may have limited resources to devote to their benefits offerings.

Once you know which benefits are a match for your population, it is imperative to communicate about them in the right ways. Look to your data to assess whether email, in-person events and signage, or other channels get the most eyeballs. Enlist community managers or employee ambassadors as advocates. In some cases, translation services will be essential to making sure your messages resonate. And whether it’s open enrollment or the rollout of a new benefit, remember that communicating is not a one-and-done exercise.

Generating excitement and engagement

While my industry peers and I could talk about benefits all day long, we must also admit that they aren’t exactly a hot topic for most workers. That is, until employees experience the value of those benefits in their everyday lives.

Once you help an employee get the weight of a significant debt off their shoulders or help them save for a long-held goal, they see the power of financial benefits in action.

Related: Save for retirement or build up emergency funds? Helping employees do both

The emotion that comes along with these life-changing moments tends to translate into broader excitement and engagement around benefits, which can in turn translate into greater plan participation and greater affinity and loyalty toward their employer.

Putting it all together: A more financially inclusive future

The workers who keep our economy afloat often struggle to save for the future, or even cover themselves with health insurance in the present, simply because they do not have enough resources to go around.

With SECURE 2.0, there is a genuine opportunity to improve employee benefit participation and chart a path to debt reduction and wealth building. Provisions like student loan matching and emergency savings accounts help low- and middle-income workers, in particular, to get a better handle on current obligations while saving for tomorrow. Seeing impacts on their personal balance sheets, these workers are incentivized and empowered to engage with their benefits at open enrollment and beyond. In turn, employers have more power and incentive to support their employees’ financial lives than ever before.

Don Baylor, Jr. is Head of Worker Solutions at Lafayette Square.