When you look at the news, whether on the Internet, newspaper or television, there seems to be a piece about student loan debt. The American Institute of Certified Public Accountants reported that student loan debt today averages $33,332. In addition, NerdWallet reported that this amount will be $37,400 on average for a 2019 high school graduate by the time they graduate from college. Those numbers are beginning to get the attention of employers interested in employee recruitment and retention.
Employer Involvement and Assistance
In a recent survey of employers, the Employee Benefit Research Institute (EBRI) addressed the question of “How Employers Are Tackling Student Loan Debt.” Employer interest in a financial wellness initiative, such as student loan debt assistance, included better employee retention, less financial stress and greater overall worker satisfaction. In addition, the EBRI survey noted that employers are beginning to link workers’ need for higher salaries to pay off student loan debt to challenges in attracting and retaining workers. These are driving forces for employer involvement in student loan debt assistance.
The survey noted that roughly one-third of employers reported offering or planning to offer some student loan debt program, such as a student loan debt consolidation or refinancing service.
In addition, the survey showed they would consider a student loan repayment subsidy that is employer paid. Another approach is educating employees about loan repayment strategies and debt forgiveness programs.
What about Help Saving for Retirement While Paying off Your Student Loan Debt?
One organization, Abbott Laboratories (Abbott), has taken an innovative step by helping their workers with student loan debt through their retirement plan. To receive a 5% matching contribution in Abbott’s 401(k) plan, participants must contribute at least 2% of compensation. The 2% employee contribution discourages financially stressed employees with student loan payments from participating in their retirement plan, and thereby, losing out on the 5% employer matching contribution plus deferral of taxation on their own contributions.
To assist their debt-stressed employees with saving for retirement, Abbott decided to offer these employees a 5% employer match in the 401(k) plan, as long as they pay at least 2% of their compensation towards their student loan debt. This allows these workers an opportunity to start building their retirement savings through the 5% employer match without contributing to the plan.
That is a great start, but before considering a similar benefit to help your employees, there are many other concerns. First, Abbott had to get approval from the IRS through a private letter ruling (PLR) in order to keep their plan compliant with IRS regulations. Secondly, a PLR only pertains to the taxpayer requesting it. This means only Abbott may implement this kind of plan feature in reliance on the PLR.
Other considerations include plan document and administration changes, and IRS compliance when adding this feature. Plan documents will need updating and amending. Record keeping systems will need to be modified to include and track such a feature. Plan compliance with IRS non-discrimination and coverage testing regulations also needs to be addressed.
Retirement Reform Bills and Student Loan Debt
On May 21, the U.S. House of Representatives passed the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) by a vote of 417 to 3. The SECURE Act is one of the most significant pieces of retirement plan legislation in more than a decade and proposes a number of changes to existing retirement plan rules that are designed to make it easier for employees to save for retirement. This bill, however, does not include any provisions to help employees with student loan debt save for retirement.
In the meantime, the question is whether the U.S. Senate will consider the SECURE Act or instead look to the recently reintroduced Retirement Enhancement and Savings Act of 2019. This act includes a provision, like Abbott’s, which allows plan sponsors to match an employee’s student loan payment in the form of a contribution to their workplace retirement plan.
Support for retirement reform seems to be overwhelming. However, differences in these bills could slow down legislation somewhat. Yet, one of these bills or an amended version of one is likely to pass this year with or without the student loan debt matching option.
Providing Assistance in the Near Future
Organizations interested in exploring the student loan debt payment matching option should keep the proposed legislation on their radar screen. Offering this group of employees retirement savings coupled with a student loan education program would be a great start in attracting and retaining your workforce. When you are ready to consider student loan debt options, we can help navigate you to a best solution that fits your organization.
For more information, contact Larry Ruff at [email protected] or 312.670.7444. Visit ORBA.com to learn more about our Employee Benefit Plans Services.