Short-term, not short-sighted: Emergency savings at work

Nov 12, 2020
  • BJ Dorfman
  • Matt Soifer

UPS, a partner in BlackRock’s Emergency Savings Initiative, recently implemented an emergency savings program as a part of their approach to employee financial well-being. B.J. Dorfman, Director of Benefits at UPS, discusses with Matt Soifer, Head of Retirement Distribution at BlackRock, how the program came together and offers tips for successful implementation.

  • Matt Soifer: Thank you, Deborah. I'm Matt Soifer and I lead distribution for BlackRock's Retirement Group and I'm joined here today by BJ Dorfman, who is the Director of Benefits at UPS. BJ, we're really excited for you to join us and UPS is doing some incredible things to help build strong financial foundations for its employees. This is a quick section, so let's jump right in. People talk about short-term savings as a prerequisite for investing and hopefully therefore growing your wealth over the long term. The pandemic has really amplified the urgency around this message and the merits of emergency savings as a buffer against unforeseen events is clear. Talk to us about UPS's focus on short-term savings and, importantly, why you felt pursuing a solution was so important for your employees.

    BJ Dorfman:  Thanks, Matt, and I really appreciate you having me here to talk about this really important topic. So, you know, our discussions about emergency savings began well before the pandemic. The pandemic has heightened the awareness about it, but we really started those discussions a couple of years ago and then, thinking about savings, our focus of education have been traditionally saving for retirement and contributing to the 401(k) plan to at least, at a minimum, receive your match. So, we started thinking about this continuing shift from employers providing defined benefit or pension plans, to moving towards to buying contribution plans as a primary source of income in retirement and we initially thought we needed to provide our people more support in the area of retirement savings. But, then we took a step back and with the help of an external partner, we decided to look at our data and wanted to understand what are the real financial stresses of our people and is it really about retirement savings, or is it something else? And through that, data analytics, we learned that debt was a primary source of stress in our population. So, student loan debt, credit card debt, employees had inadequate access to affordable credit. So, we decided that retirement savings was probably not the best bit to meet our people's needs in the moment and so we wanted to take a step back and say, 'How do we help our people with their everyday financial needs?'

    And at the time we were going through this evaluation, BlackRock presented this emergency savings initiative to us and, you all asked if we'd join on and, we said yes and, the reason we said yes was because this focus clearly had ties to what we were seeing in our data and we wanted to find a solution to help our people.

    Matt Soifer: Excellent and, as you mentioned, you were an early partner in BlackRock's emergency savings initiative and you worked very, very closely with one of our key partners, who is Commonwealth and also with Voya, to roll out an emergency savings program that leverages your existing retirement plan infrastructure. Can you talk a little bit about what the program is, how did you settle on this kinda solution and emergency savings overall?

    BJ Dorfman:  Sure, Matt. So, BlackRock initially connected us with Commonwealth, as you mentioned and we were gonna explore the solutions for emergency savings and for, for UPS, the appeal of working with a group like Commonwealth was that they're really knowledgeable in the space, they understand the market landscape and what opportunities there are-, there are for working with different vendors and they did a lot of research in this area.

    So, when we signed onto the emergency savings initiative, we were also working closely with our partners at Voya, who are a 401(k) record keeper and they had already provided a financial health assessment to our participants and one of those main pillars of the assessment was emergency saving. So, when we started to piece these things together we said, 'Why don't the three of us, Voya, UPS and Commonwealth, work together in order to solve this problem?' And then, through those discussions we talked about the after-tax solution within our 401(k) plan. We had always allowed participants to contribute up to 5% of their pay on an after-tax basis to the 401(k) plan, but that feature was way underutilized and so we thought there was something there to purse. And, um, so that's kind a how we started that conversation and the three of us got together to pick the after-tax solution. So, Voya, our record keeper, was really instrumental in making this happen, because we really were just re-framing the conversation with our people and how they can use the existing after-tax source for emergency savings. So, Voya created an email campaign for us and, and a microsite, which would support the emergency savings initiative. So, we were able to link employees to the existing content within Voya's financial wellness platform and then we could link employees directly to the after-tax contribution page, to make enrollment in an emergency savings fund easy and simple. And then Commonwealth was there to help us every step of the way, with project management and then also they were very consultative in, in helping to create those key messages based on their expertise.

    Matt Soifer: Now, do they start with payroll, or do they start with record keeping partners? Do they start with other vendors? So sometimes, you know, getting out of the box is the hardest thing. Can you tell us a little bit about that journey to implementation? Because we all that innovating and doing new things is not easy, but is there any advice or lessons learned around the implementation, that you would want to share?

    BJ Dorfman: You know, having an emergency savings account is not new, but we weren't really finding a high quality solution and we felt like the in plan after-tax solution, it's not perfect and it has some challenges with it, but it was really the easiest one for us to, to start with and roll out right away. Um, with that after-tax solution, there are potential penalties on withdrawal of the earnings, if you're under 59 and a half, although those are minimal. In the after-tax solution, you invest your emergency savings in the same line-up that you do with your 401(k) plan, so if you withdraw money you pay tax on the earnings. You don't pay tax on the base amount, because that was already after tax and then the funds are not immediately liquid. So, that could have some pain points for some people, but if you set up a bank account tied to your 401(k) plan, it can happen within one or two business days that you get your fund.

    So, you kinda have to balance those things when looking at an emergency savings solutions. And then, the last part of the after-tax challenge is that, many people think that the 401(k) plan is just for retirement and for long-term savings, and don't think of it as a-, as a vehicle for short-term savings. So, we really needed to change that conversation with our people, so they understand, you can use a retirement platform for short-term savings in the after-tax account.

    The good thing about that solution is that, it was already set up with payroll, easy payroll deduction, a source was already set up. We didn't have to work with a new vendor, 'cause Voya was an existing vendor and we didn't need data files and things like that. Everything was already in place.

    Matt Soifer:  Right. So, I think the next logical question is, how do you think about measuring success of this kind of an initiative? You know, when do you think it's reasonable to evaluate the success?

    BJ Dorfman:  Well, so, the primary metric is going to be whether or not employees start contributing to the after-tax source in the 401(k). We do have some people who are already doing that, so we'll wanna see if they actually increase their contributions and then we'll look at those who are contributing to it and see if they increase it over time. So, we're gonna start tracking now, err, we rolled it out in early October and we're still in the process of gathering the information, but we are starting to track, track it now. The other things that we're going to look at is just engagement overall. So, how many people are opening the email that we sent out about emergency savings? How much traffic is there to the microsite that Voya created for us and that microsite gives more information about emergency savings and why you should have a fund and, and what you could use it for and how to go about setting it up, but it also has related articles and financial education available through there wellness platform. So, we wanna see if our people are engaged and not only in emergency savings, but if they're looking at some of the other financial wellness information that, that's available there.

    Matt Soifer: Well, BJ, I wanna just thank you again for your time. The insights here were fantastic. We wish you all the success in this new initiative and it's really exciting to see you and UPS taking the actions to enhance your employees' financial security. Very well done. Thanks for your time.

    BJ Dorfman:  Thank you, Matt. I appreciate it.

BJ Dorfman
Director of Benefits, UPS
Matt Soifer
Head of Retirement Distribution, BlackRock
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