If your organization has hired anyone who has graduated from higher education in the recent past, you’re probably aware that they are much more concerned with paying off high-interest student loans than saving for a far more distant retirement. Indeed, interest rates on student loans are so high in some cases it doesn’t make financial sense to save at a lower interest rate, even if your business has a tax-advantaged 401(k) program that invests in excellent mutual funds. This is a concern over benefits that HR organizations need to address in order to attract the next generation of top-level applicants.
Employers Use Benefits to Attract the Best Talent
With student loan debt in the trillions and rising, addressing pay-off is a key way employers can recruit the talent they need, especially when the talent they want to recruit has a minimum requirement of a degree or even an advanced degree. Many larger companies offer internships and sponsor student workers to go to school in a relevant degree field, but these programs only address employees who are identified before starting their programs. Many more employees join the ranks of a company after completing a degree. Companies need a way to help with the rising costs of education that is fair to both the company and the student.
Abbott Laboratories recently received a ruling from the IRS approving their internal benefits program that worked in a similar fashion, matching student loan payments with 401(k) contributions. While the IRS ruling only addresses the specific program outlined for Abbott Labs, the bill introduced by Senator Wyden would widen this program to any interested company.
Senate Addresses Student Loan Matching
A bill, the Retirement Parity for Student Loans Act, recently introduced in the Senate is designed to address this issue. It would allow employers to pair student loan payments with 401(k) savings. Introduced by a member of the Senate Finance Committee, Ron Wyden, a Democrat from Oregon, it gives employers the option to match student loan payments with 401(k) contributions. Currently, contingent benefits rules make it difficult for employers to link workplace benefits in this fashion and so few employers choose to do so.
This new legislation serves the dual purpose of letting younger employees address the concern that is most pressing to them, student loans, while still giving them a vehicle to start saving, at least a little, for retirement. For employers, using a benefit program they already have set up, a 401(k) plan, means they can offer this option to employees without adding the complication of a new program. This program would function similar to current 401(k) matching and allows the student loan feature for 403(b) plans and SIMPLE retirement plans.
Another bill, the Employer Participation in Repayment Act, would allow companies to use a specific employee’s pre-tax income up to $5,250 to directly pay that employee’s student loan debt. These bills are both part of a larger debate going on in Congress concerning improving retirement policies to better address current realities.