Borrowing against retirement savings is not usually the best idea – especially when it’s to cover everyday expenses. A retirement plan is supposed to be an employee’s nest egg for their golden years. However, some employees are using those funds prior to retirement to cover expenses such as housing, medical care and even credit card debt. An AON Hewitt survey reports on the rise of 401(k) loans: almost 30 percent of 401(k) savers today have an outstanding loan against their account.
Just as it’s important for employers to help employees plan for their future, it’s equally as vital to address their current financial stability. What can be done to address employees’ current financial stability, particularly for those employees living paycheck to paycheck, struggling to meet monthly expenses or unable to save $2,000 for emergencies? Progressive employers are adding employee purchase programs to help employees stretch their cash flow and, hopefully, prevent borrowing from their retirement savings.
With Purchasing Power, employees have a disciplined way to purchase brand-name computers, electronics, home appliances, furnishings and educational services through the convenience of payroll deduction over a pre-set period with no fees or ballooning interest. Purchasing Power is an option to keep employees from borrowing from their retirement savings, getting caught in the minimum payment trap or incurring long payment terms, high interest and penalty fees.
Customers say that’s just the way the program is working. According to our customers, 72 percent report that having access to Purchasing Power makes them less likely to consider their retirement savings or other alternatives for short-term financing needs.
Utilizing employee purchase programs to obtain needed big-ticket items and educational services allows employees to ensure that they are using their 401(K) plan for what it is meant to be – savings for their golden years.
Offering an employee purchase program as a voluntary benefit can help by easing employees fiscal stress; aiding them in getting back on a firmer financial footing; and preserving existing retirement funds.