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More companies pushing employees to build a rainy day fund

How to build your emergency fund
How to build your emergency fund 05:57

United Parcel Service introduced a new feature to its retirement plan this week aimed at encouraging workers to prepare for a rainy day. The shipping and logistics company is the latest employer to offer a savings plan where employees can create an emergency fund and stockpile cash in the same way they would build a 401(k) retirement account.

UPS is offering the emergency fund option to its 90,000 non-union workers. Those employees are critical and "their financial security is an important element of their success in the workplace and our success as a company," B.J. Dorfman, UPS' global retirement strategy director, said in a statement. 

The UPS plan works like a typical retirement account where a percentage of someone's pay – up to 5% in this case — is deposited in an account and invested. UPS doesn't match the contribution, said Tom Armstrong, vice president of customer analytics at Voya Financial, the company that manages UPS' retirement benefits. 

Employees can access the emergency fund quicker – usually within a day or two – than they could a 401(k) loan, Armstrong said. When an employee withdraws from the fund, the money comes out tax-free because they are after-tax contributions. Any earnings generated from the market that are withdrawn are taxed as regular income.

"If they don't need these emergency funds, the fact is, it grows over time," Armstrong said.  

UPS began creating the emergency fund plan last year, in partnership with a Massachusetts nonprofit called Commonwealth that advocates for policies that offer greater security for financially vulnerable people. Commonwealth and other nonprofits have been helping companies like Brightside, Etsy and Mastercard roll out similar programs to UPS. 

Saving for emergencies has become more prevalent in U.S. households, as millions of families saw their incomes vanish this year during pandemic-related layoffs. Americans began saving an average 25% of their disposable income in April, May and June, according to data from the Bureau of Economic Analysis. By comparison, the average savings percentage between 2015 and 2019 was 7.4%.

The need for rainy day funds is great. A Federal Reserve survey last year found that 27% of respondents would have to borrow money or sell something to cover a $400 emergency expense and another 12% couldn't cover it at all. 

An adequate emergency fund is "the shock absorber when life throws bumps at you," said Timothy Flacke, Commonwealth's executive director. Families with a safety net are less likely to borrow money, increase their credit card debt or forgo paying bills during economic downturns, he said.

The emergency fund feature for UPS employees comes at a time when the company is faring much better in the pandemic than, say, airlines and many retailers. UPS saw its income rise almost 5% to $1.7 billion in the quarter ended June 30 and revenue rose 13% to $20 billion. The company is expected to beat Wall Street's expectations during the next earnings report later this month. 

UPS is also expected to hire 100,000 employees for the holiday season and officials said some of those roles will become permanent positions.

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