Employers hold the levers to close the gap, but new PLESA rules could make the tools easier to offer
Workers who build even a modest emergency fund contribute to their workplace retirement plans at far higher rates than those without one, according to research suggesting that short-term and long-term savings reinforce rather than crowd out each other.
People with some form of emergency savings are 70 percent more likely to pay into their defined contribution plan than those without a reserve, the BlackRock Foundation and Commonwealth found in their Emergency Savings Initiative impact report, released last month.
Over a nine-month study, the report added, emergency savings drove an additional US$3.5m in new retirement contributions.
The cushion remains thin for many, however.
Nearly 40 percent of US adults cannot cover an unexpected US$400 expense with cash, savings or a credit card paid off at the next statement.
Only 55 percent of US adults reported holding three months of emergency savings last year, down from 59 percent in 2021, according to the Federal Reserve's Survey of Household Economics and Decisionmaking.
The 2021 reading was the highest between 2015 and 2025.
The shortfall itself holds back retirement saving.
In Vestwell's 2026 Saver Survey, 32 percent of US adults said a lack of emergency savings was stopping them from putting more toward retirement.
"Emergency savings is not a separate benefit category," the Vestwell report stated. "It is part of the retirement readiness equation."
Employers may hold the most direct levers.
Among workers in households earning less than US$80,000 a year, 64 percent said they would save more for retirement if they had an emergency fund set aside and nearly one-third said they would start or raise retirement contributions if their employer let them pair the two.
Across all income levels, one in five workers who were not saving for retirement began contributing after opening an emergency savings account, and 52 percent of them did so within four months.
"If emergency savings help with retirement savings, then leveraging access points [to emergency savings] can further build out the on-ramp to retirement security," said Nick Maynard, Commonwealth's senior vice-president.
Recent US legislation has given employers two ways to fold emergency cash into retirement plans.
Under the SECURE 2.0 Act of 2022, plans may allow a penalty-free emergency withdrawal of up to US$1,000.
A second route, the pension-linked emergency savings account (PLESA), lets lower-paid employees save up to US$2,500, indexed yearly, and adds penalty-free withdrawals, employer matches, and optional auto-enrolment.
The withdrawal option has moved the needle.
When T. Rowe Price Group targeted eligible non-participants with a message about the US$1,000 provision, more than 100 enrolled in the retirement plan for the first time within a month.
The strongest results came at employers with many lower-income workers and low participation rates.
Adoption of PLESAs has lagged, the report said, largely because recordkeepers point to the complexity of building the technology.
Legislators are moving to simplify it.
Senators Cory Booker, D-New Jersey, and Todd Young, R-Indiana, introduced the Emergency Savings Enhancement Act of 2025 last December to lift the PLESA cap to US$5,000 and scrap the highly compensated employee exclusion.
The Senate Committee on Health, Education, Labor and Pensions is scheduled to hear the bill on July 30.
The choice between in-plan and out-of-plan tools is "not necessarily an either/or," Maynard said.
In-plan options "run on existing technology and payroll plumbing" and can be simpler to launch, he noted, while out-of-plan products, typically sold by financial institutions, fintechs and payroll providers, can go live faster and move with workers between jobs.
One out-of-plan example, Fidelity's Goal Booster, uses payroll integration to help employees hit savings targets, the BlackRock report said.
After Starbucks adopted it, employees using the tool contributed to their retirement plan at nearly triple the rate of non-savers and stayed with the company a median of nine months longer.
The two goals can still compete.
Rebecca Liebman, chief executive of financial wellness firm LearnLux, said that when a worker must choose, she would have them ease off retirement contributions temporarily to build a reserve.
LearnLux's 2026 report found that 36 percent of US workers named retirement saving and 32 percent named unexpected expenses as major financial stressors.
"The peace of mind and mental well-being that come with emergency savings allow employees to do everything from sleeping better at night to being more careful on the job," Liebman said.
Financially stressed employees, she added, are more likely to be hurt at work.
The instinct to prioritise a safety net shows up elsewhere.
Covering an unexpected expense topped the pre-retirement priorities of US workers at 62 percent, the TIAA Institute's "Bridging the Gaps in Retirement Expectations" report found in July.
It ranked above clearing non-mortgage debt at 43 percent, securing health insurance at 41 percent, and paying off a mortgage at 39 percent, and women backed it more than men, at 67 percent against 58 percent.
"Before we even start talking about retirement savings, this whole idea of having emergency savings is critically important and oftentimes overlooked," said Tim Pitney, TIAA's head of lifetime income distribution.
For Maynard, the sequence is straightforward.
"If you don't save enough for retirement, then the retirement income conversation is kind of a moot point," he said.
"Emergency savings links to retirement savings links to retirement income."
