- Promoting financial wellness. With SECURE 2.0, employers can now match employees' student loan repayment amounts with annual contributions to their 401(k). Companies such as Chipotle, Verizon and Abbott Labs already offer the benefit.
- A financial burden. A recent survey found 66% of student loan borrowers said they have had or will have to reduce their retirement contributions to restart their payments.
- Offering other benefits. Other options such as automatic 401(k) enrollment and access to financial advisors can help boost retention efforts.
For the 43 million American workers with outstanding federal student loan debt — about 13% of the U.S. population — saving for retirement can seem like a distant pipe dream.
Webinar: Entering Indebted: Addressing the Student Debt Crisis to Improve Employees' Financial Wellness
The burden of student loan debt on workers’ retirement preparedness only became more apparent after the federal government recently ended its pandemic-era pause on loan payments.
As a result, 66% of borrowers said they have had or will have to reduce their retirement contributions in order to restart their student loan payments, according to a recent Allianz Life survey.
But thanks to the recent implementation of a provision within the SECURE 2.0 Act, employers now have the ability to match employees’ student loan payments with a contribution to their 401(k), 403(b) or other retirement accounts.
Three large companies already offer the benefit: Chipotle, Verizon and Abbott Labs, with the pharma company leading the way in 2018.
The innovative Abbott program sparked a lot of interest, said David Amendola, senior director, benefits advisory and compliance at WTW. “A lot of other employers wanted to do something similar but were uneasy about doing it until either the IRS came out with broader guidance or legislation was enacted.”
Now with the federal government’s blessing in the form of SECURE 2.0, other employers including Disney, News Corp, LMVH and Sephora have recently announced their own matching programs.
“This program is going to be anywhere from very helpfully adopted by employers to potentially becoming an almost market-competitive provision to have in your retirement plan,” Amendola said.
Assess the Program
Making student loan debt payments significantly hurts both the average employee retirement-contribution rate and account balance, according to The Employee Benefit Research Institute’s (EBRI) recent report “Student Loans and Retirement Preparedness.”
Before any matching can begin, however, businesses should first determine how many of their employees are not contributing to their retirement program because of student loan debt payments, said Craig Copeland, EBRI’s director of wealth benefits research.
“If the number is high, then this could have a clear positive impact of getting something into the plan for these participants,” he said.
The matching program does have potential pitfalls, Copeland added, citing workers who decide to reduce their retirement contributions due to the student loan match but don’t put those savings into paying more on student loans or other debt.
Instead, they spend more on other items that don’t improve their financial situation or retirement preparedness, Copeland said. “This benefit is being added so that the individuals have improved retirement security, not for additional current consumption,” he said.
Look at the Bigger Picture
Whenever an employer helps an employee move toward financial independence, they can help eliminate stress in the workplace, which may create better retention, said Jania Stout, senior vice president, retirement and wealth at OneDigital.
In addition to matching student loans payments, employers should also explore other ways to prepare their employees for retirement, such as automatic 401(k) enrollment and one-on-one coaching from a certified financial planner.
“Having this type of resource is more impactful than just adding a match to the plan for paying off debt,” Stout said. “That is just one component of someone’s financial picture, so you must look at it all.”
Similarly, comp professionals need to determine whether this benefit will strike a chord with employees, said Copeland.
“If their workforce is younger with higher educational requirements, this could be a significant help,” he said. In contrast, an older workforce or one with less educational requirements may not be swayed by this type of benefit.
“Having these conversations opens up many more topics to help employers consider whether they are offering the right type of benefits for the workforce they employ,” said Stout.
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