Many American families lack the ability to weather a financial emergency. A study released by the National Bureau of Economic Research in 2011 estimated that about a quarter of Americans would be able to cover an unexpected expense by coming up with $2,000 within 30 days. An additional 19 percent would do so by relying, at least in part, on pawning or selling possessions or taking payday loans. After reaching a record low of 2 percent in mid-2005, the personal savings rate increased during the Great Recession, and remained between 5 percent and 6 percent throughout much of the economic recovery. However, it is not clear whether this apparent return to thrift will endure. Research shows that consumers, particularly lower-wage workers, understand the importance of saving for emergency expenses. But many lack access to savings plans or structures to enable them to begin saving. Others may worry about high banking fees or the safety of savings deposits. Or they simply fail to overcome the inertia that keeps them from entering a bank lobby and choosing from an array of savings products.
The workplace is a promising channel for asset building that has not been used enough to facilitate savings for nonrestricted, emergency purposes. AutoSave pilot tested a savings approach that automatically diverted a small amount of an employee’s after-tax wages into a savings account through a payroll deduction. The model sought to apply the power of certain default choices: simplified options with certain decisions already made on behalf of the employee, such as the type of savings account and the suggested saving level. AutoSave streamlined account opening, reducing number of decisions employees had to make and the paperwork they had to fill out. Once initiated, the employer made savings deposits automatically each pay period, until the employee decided to stop or separated from the employer. Additionally, the pilot test explored the feasibility of implementing a design that could go one step further in making a default choice — to automatically enroll employees in the savings plan unless they opted out. This design was similar to opt-out enrollment in a retirement plan, but with no restrictions on how or when the savings could be used.
Unlike most existing workplace saving programs, which focus on building retirement assets, AutoSave savings were intended to be fully liquid and available to cover short-term needs. It was believed that they might also increase employees’ attachment to mainstream financial services or serve as building blocks to help them accumulate more assets in the long term. Although federal and state governments support a variety of programs and policies to encourage saving, most are focused on long-term goals such as retirement, and as a result have restrictions on the use of funds and penalties for early withdrawals. In addition, lower-wage workers receive little or no benefit from incentives to save that are embedded in the tax code. Currently no systematic savings program or policy exists intended to encourage nonrestricted saving for the short term.
Additional Project Details
Agenda, Scope, and Goals
An initial pilot test of AutoSave was operated in collaboration with the Asset Building Program of New America, which first formulated the AutoSave concept. The pilot test was intended to answer the following questions about AutoSave’s feasibility:
What does it take for employers to implement an easy-enrollment, automatic-deduction savings plan, and why do they choose to do so? For example, do employers view AutoSave simply as an employee benefit or as a means to reach other goals, such as increasing employees’ overall use of direct deposit rather than paper paychecks?
Are financial institutions able to offer a remote (workplace-based) account-opening process; shorter, simpler account-opening forms; and a suitable savings-account product with low fees or no fees? How do financial institutions decide whether to offer an AutoSave plan?
What does it take to enroll individual employees in an AutoSave plan? What proportion of employees participate, and what characteristics do they have? What factors influence employees’ decisions about whether and how much to participate? Once employees have signed up, do they continue to participate, and are they able to accumulate account balances over time?
- Can the AutoSave approach be implemented well in a variety of workplace settings? What are the logistical and legal considerations involved in doing so? What potential does the model hold to address both employers’ workforce-stability goals and employees’ financial goals?
Design, Sites, and Data Sources
At each AutoSave pilot site, an employer collaborated with a bank or credit union to design and implement an AutoSave plan that allowed employees to open savings accounts without leaving their workplaces; streamlined the process of opening accounts; and established regular, automatic deposits. Contributions to AutoSave accounts were made with direct-deposit transfers from after-tax, take-home pay. The federally insured, low-cost or no-cost accounts were structured both to encourage saving and not to penalize savers who might need access to their funds. Workers had control of their savings and were able to withdraw money at any time without penalty.
The initial pilot employers included a Southern California distribution warehouse for a national drugstore chain; a small, for-profit light-industrial firm in New York City; a nonprofit provider of vocational training and computer refurbishing, also in New York City; a nonprofit human services agency located in the Midwest; and selected departments of two large municipal employers, located on the east and west coasts. The pilot test had a special focus on generating participation among low- to moderate-income workers, but all employees were eligible to sign up. The pilot test collected data on sign-up rates, deposit amounts, and participation. Interviews and focus groups were conducted with employees, employers, and financial institutions. In addition, the project team analyzed the feasibility of an “opt-out” enrollment model, examining federal and state regulations about how employers deliver wages to their employees, including the allowable uses of payroll cards.
The opt-in AutoSave program was fully implemented with six employers. More than 300 employees volunteered to participate. Overall participation rates ranged from 2 percent to 62 percent of all employees at targeted workplaces, with most sites ranging from 9 percent to 25 percent. At sites where wages were tracked, the majority of participants had wage levels within the lower three-fifths of the wage distribution in the workplace. These participation results were consistent with expectations for the opt-in program design.
Opt-out enrollment was not pilot tested because after assessing the legal and operational risks, MDRC concluded that while this approach would presumably be legal in some states, a lack of regulations or case law addressing the model meant that employers would be taking undue risks to implement it. In the absence of such guidance or precedent, as of 2015 MDRC determined that it was not feasible to implement the opt-out enrollment program design, even by using a payroll card with an attached savings product.