Gallagher data links thin savings to hardship withdrawals, and few employers offer a fix
About half of US employees have no emergency savings or less than three months of expenses set aside. Only 5 percent of employers offer a formal emergency savings program, according to Gallagher’s announcement of its 2026 US Workforce Trends Report: Financial Benchmarks in October 2026.
The employer findings come from 3,717 US organizations surveyed from January through March 2026. The employee figures come from a separate employee-facing Financial Health Assessment that Gallagher ran over the same months. In that assessment, 27 percent of employees reported having no emergency savings and another 24 percent reported less than three months of expenses.
Gallagher also reported that 74 percent of employees make healthcare decisions with their finances in mind.
John Tournet, US chief executive officer of Gallagher’s benefits and human resources consulting division, said employers are entering “a new phase of financial benefits strategy” built around plan design and governance.
When the 401(k) becomes the emergency fund
Employees with no cushion tend to reach for the nearest pool of cash, and for many that is their retirement account.
Vanguard’s How America Saves 2026 report found that 6 percent of participants took a hardship withdrawal in 2025, up from 4.8 percent in 2024 and 3.6 percent in 2023. That figure covers the 1,400 plans Vanguard administers, and only participants whose plans permit hardship withdrawals. It was the sixth straight annual increase and roughly triple the pre-pandemic level of about 2 percent.
The median withdrawal was $1,900. Vanguard said the most common reasons were avoiding foreclosure or eviction, at 36 percent, and paying medical expenses, at 31 percent, followed by tuition and home repairs. Participants earning less than $100,000 a year were about 3.5 times as likely to take one, and 45 percent of all participants had less than $2,000 in emergency savings.
Vanguard also said easier request processes could explain part of the rise, and that for a small group of workers under financial stress, a hardship withdrawal may serve as a safety net. Use of 401(k) loans, the alternative, was flat and stayed below pre-pandemic levels, while average account balances rose 13 percent in 2025. Hardship withdrawals are generally taxable, and most participants under age 59½ owe a 10 percent additional tax.
Vanguard said plans that offer emergency savings accounts alongside retirement plans have seen significantly lower hardship withdrawal rates. Gallagher’s finding that so few employers offer one points to where the gap sits.
What SECURE 2.0 allows
The Setting Every Community Up for Retirement Enhancement (SECURE) 2.0 Act of 2022 gave employers two options.
The first is the pension-linked emergency savings account. Plans can offer non-highly compensated employees a short-term account of up to $2,500, indexed for inflation, funded with after-tax Roth contributions. Plans may set a lower cap, and employers can auto-enroll employees at up to 3 percent of pay. Participants can withdraw at least monthly without the 10 percent early withdrawal penalty, and they don’t have to prove an emergency, according to law firm analyses of IRS and Department of Labor guidance.
The second lets plans allow penalty-free emergency withdrawals of up to $1,000, with limits on how soon someone can take another. Vanguard reported emergency expense withdrawals at 4 percent adoption, the lowest of the optional distribution provisions it tracked.
Where HR can start
The recordkeeper is the first call. Ask for the plan’s own hardship withdrawal data and the reasons participants give, then weigh a pension-linked account against savings options outside the plan.
Newer vehicles come with open questions of their own. HRD reported on Trump Accounts, where employer contributions still hinge on proposed rules and a per-employee cap.
Cost will weigh on whatever employers choose, with employers tightening their grip on benefits spending as healthcare costs surge, and a plan amendment is a smaller ask than a new standalone benefit. Employees are also missing out on money they’re owed elsewhere in their benefits. HRD reported that supplemental benefit payouts of up to $20,000 go unclaimed in Nayya’s review of medical claims.
