Vanguard Offers Emergency Savings Account, Health Cost Estimator

Two new features have been added to Vanguard’s recordkeeping platform in the last few months—the Vanguard Cash Plus Account to help participants save for emergencies and a health cost estimator to help pre-retirees better understand the medical costs they can expect in retirement.

Dina Caggiula, head of participant experience at Vanguard, says the aim of the new features is to “meet the needs of participants at every stage of retirement savings.”

“We know many participants are just getting started on a retirement savings journey, and they tend to struggle with prioritizing saving for retirement when they’re also facing other short-term expenses and goals,” Caggiula says.

Vanguard found in its “How America Saves 2024” report that plan loan use increased by 12% in 2023 compared with 2022, and 3.6% of participants initiated hardship withdrawals. Caggiula says it was important to offer an emergency savings solution so people are not tapping their 401(k)s for short-term expenses as often.

Cash Plus Account

The cash-plus account is an out-of-plan solution, not attached to the retirement plan, that features a bank sweep insured by the Federal Deposit Insurance Co. Caggiula says Vanguard decided not to offer the emergency savings account in-plan to allow participants to save for emergencies beyond the limit for Pension-Linked Emergency Savings Accounts, which is $2,500.

Participants can choose between a bank sweep with FDIC insurance or investing the money in one of five different Vanguard money market funds—each with a $3,000 minimum investment. As of August 6, Caggiula says there is annual percentage yield of 4.5% on the cash plus account.

Participants do not pay a fee to open the account and have no minimum balance to maintain, according to Vanguard. There are also no limits on how often a participant can transfer the money.

Participants are able to open an account directly through Vanguard’s financial wellness hub.

The cash-plus account has officially been live for one month and available to participants in plans that use Vanguard as their recordkeeper. Caggiula says nearly 2 million participants already have access to the benefit.

“We’re promoting to participants that they should be setting aside funds for emergencies, even before they save more in their retirement account,” says Caggiula. “We are making sure that we’re providing education to surround the promotion of the cash plus account, and we even offer an emergency savings calculator so that participants can determine just how much they should have on hand for an emergency.”

Health Cost Estimator

To help pre-retirees have a better understanding of what they can expect to pay for health care in retirement, Vanguard also now offers a health cost estimator.

The tool, based on an actuarial model developed in partnership with Mercer Health & Benefits, collects input from the user, such as estimated income in retirement, and then asks questions about the participant’s current health status and the type of coverage they expect to have. The tool then produces an estimation of how much the individual needs to set aside for health care expenses, based on factors such as their health risk, income and location.

“It’s highly personalized,” Caggiula says. “It’s not based on just national averages or assumptions. It’s very specific and targeted to the information that you provide to us as a participant.”

Vanguard’s calculator provides employees with an annual estimated cost for health care expenses, rather than a lump-sum amount for the duration of their retirement, as it is typically easier for an employee to understand annual expenses and relate that to their current spending levels.

The estimator also includes an education component about Medicare and a lump-sum estimate for long-term care expenses, based on the individual’s attributes.

“In all the focus groups … and research we’ve conducted with participants around this topic, health care expenses tend to be the area that they are most confused [with], looking for support [with], and it’s the most underestimated expense,” Caggiula says.

A plan sponsor does not need to opt into offering the health cost estimator, as it is available as part of Vanguard’s financial wellness platform. The health cost estimator has been live for about three months.