$1,500,000,000,000![1] At $1.5 trillion in outstanding loans nationally, chances are that many of your new recruits and current employees are struggling to pay down student loan debt, resulting in financial stress and delayed retirement savings. In fact, student loans are so common that 4 out of 10 Americans who have gone to college took out some sort of debt to pursue their degree.[2]
Recognizing the stress caused by student loans, employers have started to take action by introducing innovative new employee benefits, like the student loan 401(k) “match”, financial wellness tools, and other programs like tuition reimbursement. Dive in to the details below, and explore the options for your organization.
- The Student Loan 401(k) “Match”:
On June 26, 2018, Abbott Labs announced a new 401(k) plan design[3], which allows employees paying off student loan debt to receive an employer contribution in the plan – without requiring the employee to save to the 401(k). With its “Freedom 2 Save” Plan, Abbott Labs’ employees do not have to choose between paying down student loan debt or saving to the retirement plan to receive an employer matching contribution. As long as the employee contributes 2% of his or her pay to pay down student loans, the employee will receive the Abbott contribution to his or her 401(k) plan account.
The first of its kind, Abbott Labs’ student loan program received a private letter ruling (PLR) from the IRS on its design. The program is designed not to violate the IRS’ contingent benefit rule, which prohibits employers from offering any incentives (other than true matching contributions) for employees to defer or not to defer into a defined contribution plan. When a participant repays student loans, the employer “matches” these repayments in the form of a nonelective contribution, which is allocated to the plan after year end and subject to nondiscrimination testing.
While tackling the student loan debt dilemma through the 401(k) plan is a new, exciting, and innovative employee benefit, plan sponsors exploring this possibility should carefully evaluate how such a design would impact their retirement programs. Key considerations include potential cost, employee communications, administrative impact, coordination with third party vendors, impact on nondiscrimination testing and whether to request a PLR.
Curious about other ways employers are modernizing their 401(k) plans? Check out our blog post “5 signs your defined contribution retirement plan design is retro”.
- Financial Wellbeing Tools:
As 3 in 5 employers look to offer financial assessment tools to their workforce, a key consideration in the roll-out of a financial wellbeing program should be addressing student loan debt. As you review financial assessment tools for your employees and as you evaluate the offerings of financial wellness vendors, consider asking the following questions of your vendors:
- Do education materials and online tools allow for the modeling of student loan debt?
- Are employees receiving a personalized experience tailored to their individual situation?
- Can the communication strategy be designed to highlight and promote all of the wellbeing resources offered by the employer to help the employee manage student loan debt?
Want more suggestions on excellence in financial wellness tools? Check out our tips in the HR Trove Blog “7 Must-Haves for Your Financial Wellness Tool”. Want to discuss financial wellness and see an example of a best-in-class financial wellness tool designed around these emerging best practices?
- Tuition Reimbursement and Other Programs:
According to Willis Towers Watson’s 2018 Voluntary Benefits Survey, employers are looking to design programs related to student loan debt in order to:
- Deliver a unique attraction and retention tool, especially for millennials
- Support employee financial wellbeing and a more productive workforce
- Promote the brand of the organization
Traditionally, the most popular approach to accomplish these strategies has been to reimburse the tuition of those seeking continuing education, with 80% of surveyed employers offering such a program. New and emerging programs for sponsors to consider include counseling for student loan refinancing, student loan consolidation, or employer contributions for student loans. More than 20% of employers surveyed are considering introducing or enhancing future student loan management programs as early as 2020.
Has your organization considered the impact that student loans will have on employee performance and wellbeing? Keep reading the HR Trove Blog to learn more and keep up to date on all the new trends.
Julie Vickery is a Senior Consulting Actuary at Willis Towers Watson. She helps organizations figure out their benefits programs and specializes in retirement benefit strategy for defined benefit and defined contribution plans. Outside of work, Julie loves spending time with her family, including her dog Buddy.
Dave Amendola is a senior legal consultant and the North America Intellectual Capital Leader for the Benefits Advisory and Compliance group at Willis Towers Watson. Dave consults with clients on governance and compliance matters relating to their retirement plans. When he’s not consulting, Dave, who lives in the Northeast, is a platform tennis enthusiast who plays even when the temperature is below freezing. He insists that this is socially acceptable behavior.
[1] https://www.federalreserve.gov/releases/g19/HIST/cc_hist_memo_levels.html
[2] https://www.federalreserve.gov/publications/files/2017-report-economic-well-being-us-households-201805.pdf
[3] http://www.abbott.com/corpnewsroom/leadership/tackling-student-debt-for-our-employees.html
