'Emergency savings is a foundation of financial security': Commonwealth Senior VP

Nick Maynard, Commonwealth Senior Vice President joins Yahoo Finance's Kristin Myers to discuss how the company is helping workers build savings amid economic risks.

Video Transcript

KRISTIN MYERS: We're joined now by Nick Maynard, Commonwealth senior vice president for this Funding Our Future segment. So Nick, I know that UPS is essentially allowing their employees to save money in this emergency savings initiative for about 100,000 of their employees. I'm wondering if you can explain, really, how does this all work. I know it's within the 401(k) scheme

NICK MAYNARD: Yeah, that's a great question. It's an exciting milestone moment for emergency savings and for employees having that as a benefit offering. I think one of the places to start in this conversation is that emergency savings is a foundation of financial security. And it's a missing piece of the puzzle in the financial services ecosystem surprisingly, but it's also missing as an employee benefit.

And so, Commonwealth is part of the BlackRock Emergency Savings Initiative, which has a keen focus on this issue of emergency savings, but especially for low to moderate income employees. And as part of that, our work is to really unpack the need and the job that emergency savings can do.

And there's three jobs that it can do. It can handle the day-to-day movement from expense and income volatility. It can handle income shocks that come along or expense shocks. And the third is, it can really handle moments like this with COVID. So the collaboration that you mentioned really delved into those issues, with UPS and Commonwealth and Voya to look into the 401(k) as a place to provide an emergency savings option for those 90,000 employees.

KRISTIN MYERS: Now, Nick, of course, when I was reading this news, I immediately thought about taxes because one of the benefits of putting money into your 401(k) is that you essentially can do so tax-free. And it's typically for retirement. And I imagine, of course, emergencies don't really care what age you are and whether you're going to be facing tax penalties on the backend if you have to withdraw early.

So I'm going to put that question to you. Will folks, if there is another emergency-- hopefully we do not have another global pandemic forever or quite some time. But will folks be penalized tax wise if they do have to pull money out of this emergency savings account? Because that's typically what happens when you pull early from your 401(k).

NICK MAYNARD: Yeah, that's a great question. And a key part of this partnership with UPS was the involvement of Voya Financial, which has been UPS's 401(k) plan provider for its non-union employees for a very long time.

And so, as we looked into issues like that around taxes, it really became clear that the after tax in plan account that exists in that 401(k) plan was a real opportunity to provide an emergency savings account for folks, but also reduced the amount of penalties that you're referring to. Because the money comes in after tax, and then the small penalty, if removed for any emergency, is on the small earnings.

Remember, the goal here is to create small balances that are liquid that folks can use when emergencies come up. And so, it turns out that after tax pocket in working with UPS and Voya made a lot of sense.

KRISTIN MYERS: All right, well, we will have to leave that there. I wish we had more time. This is, of course, a fascinating initiative. Nick Maynard, senior vice president at Commonwealth. As a reminder for everyone, this, of course, is a part of our Funding Our Future segment. Funding Our Future is an alliance of organizations dedicated to making a secure retirement possible for all Americans. Thanks so much, Nick.