CFPB Policy Guidance Allows Employers to Create Automatic Savings Programs

Emergency savings programs may soon become more readily available within employer plans.

New policy guidance secured from the Consumer Finance Protection Bureau (CFPB) by Commonwealth, a partner in BlackRock’s Emergency Savings Initiative, allows employers to automatically enroll employees in an emergency savings account—similar to auto-enrollment for defined contribution (DC) retirement accounts. The CAST Template  makes it easier for employers to apply for approval from the CFPB to add an Autosave program to their employee benefits.

“If people are familiar with automatic enrollment and contributions through the 401(k) space, we thought it would be interesting to see this in the emergency savings space and, specifically, for employer-based emergency savings,” says Jason Ewas, a senior policy manager at Commonwealth.

The application for the CAST Template outlines what the CFPB classifies as an effective emergency savings program and clarifies how employers can go about applying such a program in their plans. Traditionally, employers have been wary of adding emergency savings programs into their plans due to Regulation E of the Electronic Funds Transfer Act, which defines how a consumer’s electronic funds are transferred. But, by using the CAST Template by Commonwealth, employers can receive approval from the CFPB to create a program. 

Ewas says the application does state that account features would have to align with the broader goals of the program, which would be to increase employee savings, and, more specifically, to increase savings for an emergency. “There aren’t specific guidelines, but there is that specific principle,” he says. “For an employer that wanted to take the lead, they would work with the CFPB and figure out what types of accounts they want and so on.”

Under the policy guidance, new and existing employees would be able to build emergency savings by directing a portion of their earnings to an existing account at a financial institution of their choice, according to Commonwealth. Similar to a 401(k) account, if an employee does not designate an account after receiving notice and after a reasonable period of time, the employer can create an Autosave account for the employee at an institution chosen by the employer. However, employees can select to opt out of the feature.

Autosave exemplifies a current focus on emergency savings and a renewed interest among workers in saving for unplanned events, especially as unemployment numbers have risen as a result of the COVID-19 pandemic. A FlexJobs and Prudential survey found 62% of individuals state they do not have enough emergency savings to last six months. Almost half (46%) said they wouldn’t have enough for three months.

More information on the application can be found here.