Congress may make it easier to allocate funds for emergency expenditures

Thomas Barwick | Digital Vision | Getty Images

Many families struggle to get money when faced with an unexpected $400 expense.

This lack of emergency savings may force them to borrow money at high interest rates to pay for sudden expenses, putting their financial security at risk.

Now Congress has a window to address this problem by paving the way for new emergency savings plans in the lame-duck session.

Three emergency savings proposals may be included in a legislative package known as Secure 2.0, which is set to amplify changes to the pension system imposed by the Security Act in 2019.

“We are on the cusp of a major shift in how people rescue emergencies in this country, thanks to public policy and private sector innovation,” Shai Akabas, director of economic policy at the Bipartisan Policy Center, said during a recent webinar. Hosted by the Washington, D.C. think tank.

More personal finance:
Reasons to say “no” to store credit this holiday shopping season
How to score the charitable tax credit on Giving Tuesday
Inflation boosts US household spending by $433 per month

The panel discussion coincided with an open letter from the Bipartisan Political Action Center with 40 organizations to Senate Majority Leader Chuck Schumer, D-N.Y., and Minority Leader Mitch McConnell, R-Ky., as well as House Speaker Nancy Pelosi, D-Calif., and Minority Leader Kevin McCarthy. , California State.

The letter called for the inclusion of three bills that would inflate emergency savings in the pending retirement package.

“We firmly believe that the emergency savings policy is consistent with the goals of the American retirement system and will help enhance the financial resilience of American families,” they wrote.

Why emergency savings are deficient

Anti-eviction signs are displayed in a rented building in Washington, D.C., on August 9, 2020.

Eric Baradat | AFP | Getty Images

The Covid-19 pandemic has been a stress test for many Americans’ finances.

With many parts of the economy shut down, many individuals and families have found their incomes reduced or eliminated altogether.

The federal government stepped in and sent unprecedented amounts of aid through three rounds of stimulus checks, enhanced federal unemployment benefits, direct monthly child tax credit payments to parents and other policies.

However, the pandemic is still leading some workers to withdraw money from their 401(k) or other retirement savings accounts, putting their long-term financial futures at risk.

How employers entice workers with emergency savings plans

Those with at least $1,000 in emergency savings at the height of the pandemic were more likely to withdraw from retirement savings accounts, according to the Aspen Institute.

“As people face that crisis, you need liquid savings to protect your long-term investments and make sure you have a secure retirement and build wealth,” Tim Shaw, associate director of policy at the Aspen Financial Security Program, said during the bipartisan meeting. Policy center panel.

COVID relief measures helped push the share of families who can cover an unexpected $400 expense with cash or cash equivalent to 68% in 2021, up 4 percentage points from 2020. It also marks the highest level since the Fed began the survey. in 2013.

Shaw noted that one in three households needs to borrow money for an emergency of $400, which is still “too much.”

How 3 proposals might encourage savings

image source | Getty Images

Advocates hope that three proposals that can help encourage emergency savings will be included in Secure 2.0.

This includes two bills proposed by Sen. Cory Booker, D-N.J. , and Todd Young, R-Indiana, as well as a third bill devised by Sens. James Lankford, R-Oklau, and James Bennett, D-Colourado.

One proposal from Booker and Young would enable employers to provide emergency savings accounts for workers in addition to their retirement savings accounts. Employees will be able to automatically save up to $2,500 that they can access at any time in the event of an emergency.

Akabas noted that the second proposal by Booker and Young would allow for separate, stand-alone plans outside of retirement accounts, which would be “really important” for employees who don’t currently have retirement plans through their employer.

Third, the Lankford-Bennett plan, would allow workers to withdraw up to $1,000 from their retirement accounts without penalty in the event of an emergency. Such withdrawals will only be permitted once a year; Additional contributions will be required before another drawing can take place.

Chantel Sheaks, executive director of retirement policy at the American Chamber of Commerce, said she was “crossing fingers” that the three proposals would make it into Secure 2.0 and that the legislation would pass.

From the employer’s point of view, we need to make a choice.”

She indicated that what may work for one employer may not work for another employer. Sheaks said the three proposals would allow for more options, including possibly encouraging employers who don’t currently have retirement plans to consider adopting them.

Furthermore, because emergency withdrawals can reduce workers’ retirement insurance, these emergency savings options can help prevent those obstacles to building wealth.

“People have emergency needs today, and we can’t forget those emergency needs,” Cheeks said. “We need to find a way to balance the needs of today with the needs of tomorrow.”

Related Posts

amNewYork appoints Stark Miller as Senior Political Correspondent

Ethan Stark Miller Ethan Stark Miller It was exploited Powered by amNewYork as Senior Political Correspondent. Previously, he was a government correspondent for Schneps Media in New…

Synergy pricing error rule

JUST IN: Overpowered Synergy sold out of the generation division for more than a year, a review panel found.

Accelya Names CEO Gilliland | Business Travel News

Travel technology company Accelya has announced the appointment of Sam Gilliland, former CEO of Saber, as its new CEO, with current CEO Jim Davidson transitioning to vice…

Real money online casino – Insights success

Whether you are just looking to get into real money online casino play for the first time or you are looking to play more frequently, there are…

UK pork producer is paying £4m to hire Filipino butchers

One of the UK’s biggest pork producers has spent 4 million pounds ($4.8 million) hiring butchers from the Philippines, after a staffing crisis threatened to disrupt production….

The Central Bank of Kuwait is looking to obtain loans from the World Bank to boost foreign exchange reserves

money markets The Central Bank of Kuwait is looking to obtain loans from the World Bank to boost foreign exchange reserves Friday, November 25, 2022 The Central…

Leave a Reply

Your email address will not be published. Required fields are marked *