NEWARK, N.J.--(BUSINESS WIRE)--As America Saves Week kicks off Feb. 25, Prudential Financial, Inc. (NYSE: PRU) is calling on employers to consider adding an after-tax emergency savings feature to their 401(k) plans to help workers save for unexpected expenses.
The partial government shutdown earlier this year put a national spotlight on the need for emergency savings as nearly half of affected federal workers fell behind in paying bills and 83 percent reported higher overall stress levels, a 2019 Prudential survey1 found. Coupled with earlier research2 that found most Americans cannot handle a $500 emergency, the benefits of an emergency savings feature are clear.
“One missed paycheck, or even an unexpected car repair, can create real financial hardship for Americans,” said Phil Waldeck, president of Prudential Retirement. “There is a real opportunity at the workplace to not only address Americans’ long-term savings needs, but also their short-term savings challenges. And we’re finding that after-tax contributions within the 401(k) plan can help solve this challenge without compromising retirement savings.”
Just 26 percent of Americans are on track toward building an emergency savings account, Prudential’s 2018 Financial Wellness Census found. Certain population segments are particularly vulnerable. For example, as Military Saves Week coincides with America Saves Week, Prudential’s census found just 15 percent of millennial and Gen X veterans are on track toward building an emergency savings account.
After-tax contributions are the least used of the three retirement savings options available to most private sector workers, including before-tax contributions and a Roth 401(k) option. Just 14.6 percent of employers offer an after-tax savings option within their 401(k) plan, according to 2016 Plan Sponsor Council of America data.
Recognizing this need, Prudential Retirement in 2018 introduced an emergency savings feature for workplace 401(k) plans to provide employees the opportunity to make after-tax payroll contributions alongside before-tax contributions.
The feature allows employees to withdraw their after-tax savings if an emergency arises, while preserving the before-tax retirement contributions.
Any earnings that are withdrawn are subject to taxation as well as a 10% premature distribution tax, if withdrawn before age 59 ½.
Prudential has offered its own employees an after-tax savings feature through its 401(k) plan for many years, along with before-tax and Roth 401(k) contribution options.
“We are committed to providing a highly competitive benefits package that enhances the well-being of our employees. Financial wellness is an essential part of this,” said Andy Gregg, vice president, employee benefits at Prudential. “We recognize that our employees have diverse savings challenges, which is why we offer a savings plan with flexible options, including the after-tax option.”
Savings is critical to financial wellness
A part of Prudential Retirement’s holistic financial wellness offerings, the emergency savings feature gives workers an alternative to savings and investment accounts outside the workplace. It also helps stop the drain on pre-tax retirement contributions. Linking emergency savings to an employer-sponsored retirement plan provides other benefits such as no minimum account balance and lower investment fees than a worker might pay at a brokerage.
About Prudential Retirement
Prudential Retirement delivers retirement plan solutions for public, private, and non-profit organizations. Services include defined contribution, defined benefit and non-qualified deferred compensation record keeping, administrative services, investment management, comprehensive employee education and communications, and trustee services, as well as a variety of products and strategies, including institutional investment and income products, pension risk transfer solutions and structured settlement services.
With more than 85 years of retirement experience, Prudential Retirement helps meet the needs of 4.4 million participants and annuitants. Prudential Retirement has $432.4 billion in retirement account values as of Dec. 31, 2018. Retirement products and services are provided by The Prudential Insurance Company of America (PICA), Newark, N.J., or its affiliates.
Prudential Financial, Inc. (NYSE: PRU), a financial services leader with more than $1 trillion of assets under management as of Dec. 31, 2018, has operations in the United States, Asia, Europe, and Latin America. Prudential’s diverse and talented employees are committed to helping individual and institutional customers grow and protect their wealth through a variety of products and services, including life insurance, annuities, retirement-related services, mutual funds and investment management. In the U.S., Prudential’s iconic Rock symbol has stood for strength, stability, expertise and innovation for more than a century. For more information, please visit news.prudential.com.
1 Financial Fragility: How the government shutdown affected the household finances of government workers, Prudential Financial, Inc., February 2019
2 Increasing Financial Security with Workplace Emergency Savings, Prudential Financial, Inc., July 2018