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Public/private partnerships create shared-value to help more people save.

By Jamie Kalamarides, President of Prudential Group Insurance & Andrea Levere, President Emerita of Prosperity Now

December 20, 2019

We are facing a national savings crisis. More than half (54%) of Americans struggle to meet their most basic financial obligations[i] – let alone build a nest egg for emergencies, education or retirement. And they often take withdrawals from their retirement plans to solve a crisis, a dangerous trend causing a further debt spiral.

This simply should not be.

During the 35-day government shutdown in early 2019, Prudential surveyed federal workers to find out what impact the shutdown had on their household finances. More than a quarter (26%), said they took money from their 401(k) to pay their bills. When employees take early withdrawals from their 401(k) to solve a crisis, they may address the immediate emergency, but it is often difficult for them to replace the lost funds without adjusting their timeline for retirement.

What’s the solution? We need to raise awareness about the importance of saving, including advocating for policy change in Washington that would expand incentives and access to savings for vulnerable populations. When private companies and nonprofits come together to create a shared-value alliance built on a common purpose, mutual respect and deep trust, it creates a three-way win:

  • The community has more of its needs met in ways that make a real difference;
  • The corporation gains insight to help it reach a new market in a meaningful way;
  • The nonprofit gains resources to significantly expand the scale of its impact.

Enabling saving for emergencies

One thing private companies can do is offer employees an emergency savings feature to help them establish a cash safety net for unanticipated events like a car repair, job loss or health crisis. Prudential piloted such a feature in 2018 in conjunction with Prosperity Now, a national nonprofit working to expand economic opportunity for low-income families and communities. We used our combined knowledge about low to moderate-income individuals and families to create an emergency savings vehicle for clients that use Prudential as their 401(k) administrator. Employees can contribute to both a 401(k) account and, using after-tax payroll deductions, a linked emergency savings option within the account.

These initial efforts helped people realize how important it is to save for emergencies and how simple it can be for employers to help their employees build an emergency savings buffer using the existing 401(k) framework.

For example, in the first six months of the pilot, more than 400 workers contributed an average of 1% of their pay to emergency savings. That’s impressive considering that these workers had to make a choice to opt-in as opposed to being automatically enrolled. Under the existing regulatory framework, employers cannot automatically enroll workers into an emergency savings plan. However, policymakers just passed the Strengthening Retirement Security Through Short-Term Savings Accounts Act of 2019, which will allow employers to offer short-term savings accounts with automatic contribution arrangements for financial emergencies. We believe that automatic enrollment is a powerful tool that can help incentivize people to save for emergencies, just as it has incentivized people to save for retirement.

Learning and assessing the impact

Encouraging emergency savings is just one example of the benefits of public/private partnerships. Other entities, including Prudential and Prosperity Now, are increasingly partnering to develop solutions that address the financial challenges of our country’s most vulnerable consumers. In addition to developing meaningful solutions, these partnerships help advance the public conversation and actions to address the persistent, pervasive and alarming lack of financial wellness plaguing American communities.

Our long-term goal is to increase the number of lower-income households that have adequate savings, contributing to greater financial stability and wealth creation. That is the next frontier in this partnership, and we’d argue it should be a priority for policymakers as well as the private, public and nonprofit sectors.

However, we don’t see success as simply about building direct participation in this program. Helping people overcome barriers to financial security is a major endeavor. Success will require innovative thinking and full and extensive cooperation among government, private- and public-sector companies and not-for-profit organizations. Meaningful change will occur only when those organizations acknowledge that the current scale of financial inequality is unacceptable for our nation and leverage their complementary strengths to design and implement scalable solutions.

[i] Prudential, “Financial Wellness Census, 2018.”

 

The Prudential Insurance Company of America, Newark, NJ. 1026542-00002-00.

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Josh Stoffregen-Foye
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Josh.stoffregen@prudential.com