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How the Rise & Shine Act will provide emergency savings accounts for workers

Prosperity Now Senior Fellow Jamie Kalamarides joins Yahoo Finance Live to discuss the new Rise & Shine Act aiming to provide emergency savings tied to workers' 401(k)'s and the statistics on household savings.

Video Transcript

RACHELLE AKUFFO: Well, if you're tempted to dip into your retirement fund when you see your finances getting strained, relief could be on the way if the Emergency Savings Act of 2022 goes through. For more now on this, we're joined by Jamie Kalamarides, senior fellow at Prosperity Now. So get us up to speed on where this bill is and what it would actually do in terms of real world application.

JAMIE KALAMARIDES: Yeah, yesterday, the Senate HELP Committee passed out of committee the Rise and Shine Act. And that is a part of is the Emergency Savings Act of 2022. And the Emergency Savings Act of 2022 allows employers to automatically enroll their employees into a savings plan at about 3% of their salary. And it would increase to about $2,500. That would be invested in a principal preservation fund. And they'd have the opportunity to withdraw it once a month, without any penalty.

They would be-- employers would be able to match the employees' contributions into their 401(k) plan. And if employees left, they'd be able to roll it over into a Roth plan. This is really exciting because workers have real challenges about emergency savings.

SEANA SMITH: Jamie, it's a bipartisan-- sorry to cut you off there. But it's a bipartisan bill. This is something that you don't necessarily see too often these days, Democrats and Republicans both coming together on this issue. Are you confident it will get through the legislative process, and we will see it get passed?

JAMIE KALAMARIDES: Yeah, so we saw the House version, the SECURE 2.0, get passed 414 to 5. This bill, the Emergency Savings Bill, is sponsored by Cory Booker of New Jersey and Todd Young of Indiana. It passed unanimously on a vote out of committee. It is bipartisan. It is supported by affinity groups, progressives, industry, et cetera, worker groups. And pretty confident that this can get through. The next step is the Senate Finance Committee next week for a markup. And then it goes to the full Senate floor for a vote.

RACHELLE AKUFFO: And I want to talk about this letter that you wrote to Chair Patty Murray and ranking member Richard Burr on the committee for Health, Education, Labor, and Pensions, otherwise known as HELP. You indicated that 53% of families have no liquid emergency savings or less than a month of income saved for emergencies. Talk about some of the key ways that this bill and this act could really help limit that.

JAMIE KALAMARIDES: Yeah, and the numbers are even worse for Black and Latino families. 85% of Black families don't have a month's worth of savings, 75% of Latino families. And it's not just about low and moderate income families. 25% of families earning over $125,000 don't have a month's worth of emergency savings. And so, it is widespread across the country.

And what this will do is, it will create a nest egg for someone to be able to tap into emergency savings without having to dip into their 401(k) for a loan or for a hardship withdrawal. And those solutions where people run out of money-- we saw this in the government shutdown. We saw this in the early days of COVID. People tapped into savings that was really meant for the long-term. And the challenge with that is that they're borrowing from their future to finance today. This will create a soon savings account, something that they need to use in the current environment, and really help them get through bumps in their everyday challenges, in their everyday life.

SEANA SMITH: Jamie, in the past, Prosperity Now has partnered with some employers. You partnered with Wells Fargo. You partnered with Prudential in order to help employees increase their savings. I'm curious, what has interest been like for those programs from those employees?

JAMIE KALAMARIDES: Yeah, interest has been really high. Now, all of those programs to date have had to be on a voluntary basis. They haven't been automatically enrolled. Yet, those employers have seen up to 40% of individuals sign up for this plan. And we think with automatic enrollment, we're going to see numbers that are consistent with what we see on the 401(k) side, 80s, 90% of people automatically enrolling in this.

And what we see is, is that people use this. They use it appropriately. They take out money when they need to and then they start contributing back when they need-- when they have an opportunity as well in the next paycheck. The nice thing about this program is that they don't have any hassles or forms to fill out. There's no criteria. It's their money. It's after-tax contributions, and there's no penalty to take it out.

RACHELLE AKUFFO: And I want to ask you because a lot of times, when employers hear about some of these benefits, they're like, look, what is this going to cost me? How am I going to be able to run my business and provide this? Separate some of the myth from the reality here.

JAMIE KALAMARIDES: Yeah, so employers, this is entirely voluntary. We're not forcing employers to offer this, but employers have a business case to offer these sort of solutions. That is, their employees are tending to use payday loans. Or they're using high fee credit cards. Or they're tapping into their 401(k).

Most retirement providers have an ability to offer this sort of solution for an extremely low cost, because they already have the hard wiring set up for various forms of contributions. They already have a principal preservation fund as part of their retirement plan. And this is just allocating and keeping track of the money separately. I don't expect this to be a costly solution at all. It is probably going to be as inexpensive as a normal bank account would be.

RACHELLE AKUFFO: Well, that will be welcome news for a lot of people, obviously, struggling with record high inflation right now. A big thank you to Jamie Kalamarides there, senior fellow at Prosperity Now. Thank you so much.