As the financial landscape tightens, more Americans are tapping into their 401(k) plans for emergency funds. Data collected on current Huntington Ingalls Industries (HII) employees shared by Rishi Kumar, Co-Founder and Co-CEO at Kashable, reveals that 19% of HII 401(k) plan participants are currently repaying loans from their 401(k) accounts. Additionally, this data reveals that 6.4% of active contributors are making withdrawals, with 2.5% attributed to financial hardships.
This growing reliance on using retirement savings for immediate financial needs was the focus of a compelling webinar hosted by Jameson Fauver, Vice President of Business Development at Kashable. The discussion featured insights from Rishi Kumar, Kenje Mallot, Wealth Solutions Architect at Alight Solutions, and Kim Csan, Corporate Director of Benefits Strategy & Engagement at Huntington Ingalls Industries (HII).
Together, they explored how HII is addressing these challenges with innovative solutions aimed at reducing reliance on 401(k) accounts for emergency funds while still meeting immediate financial needs.
The Drivers Behind Premature 401(k) Access
The panelists agree that the trend of Americans treating their 401(k) accounts as emergency funds is driven by a range of financial pressures. Inflation, soaring household debt, and unforeseen medical expenses compel individuals to seek immediate financial relief from the most accessible sources, which can often be their retirement savings.
When employees use their 401(k) plans as emergency funds, it undermines the purpose of these accounts: to provide a stable financial foundation for retirement. Premature withdrawals not only typically incur taxes and penalties but can also result in lost potential compound growth. In addition, this disruption in savings can lead to a shortfall at retirement, potentially forcing employees to either postpone retirement or adjust to a lower standard of living.
Without readily available emergency funds, employees are often left with no choice but to dip into their 401(k). This crisis calls for innovative approaches, including alternative lending solutions that do not compromise retirement savings.
Innovative Solution to HII Employees’ Financial Wellness with Alight and Kashable
HII recognized the urgent need to help support their employees’ financial wellness. In collaboration with Alight and Kashable, HII began to offer their employees a comprehensive financial wellness program. This initiative is aimed at the prevention of premature 401(k) withdrawals and the promotion of employee financial stability.
HII began this journey by evaluating the financial behaviors and needs of their workforce. Kim Csan from HII highlighted how the company observed a cycle of continuous borrowing among employees.
Initially, the ability to take out multiple loans from 401(k) accounts seemed to be a flexible financial solution. However, it quickly became clear that this flexibility led to a dangerous dependency which often prevented many employees from achieving financial stability and complicated their retirement prospects.
HII responded by restricting the ability to take multiple loans from 401(k) accounts in hopes to reduce habitual borrowing. Nevertheless, HII sought a more supportive approach to tackle the root causes of early withdrawals.
Alight Solutions brought its expertise in human capital technology, integrating personalized financial wellness insights into HII’s platform. Alight also introduced Kashable as a strategic partner to provide a viable alternative to high-interest loans.
The Role of Kashable
Kashable played a crucial role by offering low-cost loans as an alternative to 401(k) withdrawals and high-interest payday loans. Kashable’s platform integrated seamlessly into HII’s HR and payroll systems, ensuring an efficient loan process.
A key feature of Kashable’s solution is our proprietary underwriting algorithm, which helps to ensure that employees who are approved for a loan are offered an amount based on what they could afford to repay. This helps to prevent them from falling into a cycle of debt often associated with high-interest loans.
Additionally, loans under the Kashable program can be conveniently repaid via payroll deduction and repayment activity is reported to the major credit bureaus which can help to provide long-term benefits beyond immediate financial needs. HII’s innovative approach has created a robust financial wellness program that not only provides financial relief but also fosters long-term financial security.
Measurable Impact
Kumar notes that introducing financial wellness solutions at HII, in partnership with Alight and Kashable, has led to significant measurable benefits. Here are some impacts highlighted by Kumar:
- Reduction in 401(k) borrowing: An analysis of six years of data revealed a 34% reduction in the 401(k) loan participation rate since implementing Kashable. Furthermore, 76% of employees who had a loan with Kashable did not take a 401(k) loan, preventing approximately 8,000 401(k) loans. This indicates that Kashable loans effectively met the financial needs of employees, reducing their reliance on retirement savings.
- Increased employee retention: The program has also improved employee retention. On average, employees who used Kashable loans were 30% more likely to remain at their jobs. This increase in retention underscores the program’s effectiveness in providing financial stability and fostering a committed workforce.
- Unique trend in borrowing behavior: National borrowing trends did not influence the decline in 401(k) borrowing among HII employees. Kumar says that during the period when the 401(k) borrowing rate at HII decreased by 34%, overall personal loan debt in the U.S. surged by over 50% compared to pre-pandemic levels. This contrast shows that Kashable’s loans have provided a crucial stopgap, preventing employees from tapping into their retirement savings.
Conclusion
Securing employees’ finances by reducing their borrowing or withdrawals from 401(k)s is crucial for ensuring retirement readiness and avoiding tax penalties. The partnership between HII, Alight, and Kashable highlights how innovative financial wellness programs can help to achieve this goal.
Kashable offers low-cost loans based on employment status, income, and credit history. These loans serve as a reliable alternative to 401(k) loans, may help employees avoid early retirement withdrawals and can help build their credit scores. Kashable’s integration with Alight’s Worklife platform allows for personalized financial guidance.
Organizations can learn from this model to support their employees’ financial health. Implementing similar strategies can help reduce financial stress, enhance job satisfaction, and promote long-term financial security. Adopting comprehensive financial wellness programs ensures employees are prepared for immediate needs and future retirement, ultimately benefiting both the workforce and the organization.