Many workers with student loans carry over their savings for retirement. Today, a handful of companies are trying to keep them from falling behind on retirement savings by matching their student loan repayments with contributions to a 401 (k) plan.
In recent months, companies, in particular
have initiated or announced plans for such programs. Companies are joining a growing number of others helping workers reduce student debt in other ways, including making direct payments to lenders.
“This is a critical need,” said Carl Gagnon, assistant vice president of global financial wellness at
Starting Jan. 1, the insurer will allow its 8,500 U.S. employees to cash in up to five of their days off per year – they get at least 28 – for student loan repayments. “Studies suggest that growing student loan debt is hurting employees’ well-being, their focus on work and planning for retirement,” he said.
Eight percent of the 2,763 employers surveyed by the Society for Human Resource Management in April offered help with student loans, up from 4% in 2018 and 3% in 2015. According to a survey last year of 250 companies by According to the Employee Benefit Research Institute, 11% of employers offered grants for the repayment of student loans and 13% planned to add them.
Americans have $ 1.5 trillion in student loan debt, up from $ 346 billion at the end of 2004, according to the Federal Reserve Bank of New York. After mortgages, student loans are the second largest debt category. More than two-thirds of recent college graduates have student debt. Among those in debt, the average balance is $ 29,900, according to Mark Kantrowitz, editor of Savingforcollege.com.
Geoff Sanzenbacher, a researcher at the Center for Retirement Research at Boston College, said people with debt often have “a late start to save in a 401 (k) plan,” potentially reducing their retirement wealth. According to the center, college graduates with student loans who were born between 1980 and 1984 had 50% less in their 401 (k) plans by age 30 than their peers without loans.
Employer assistance in extinguishing this debt comes in several forms. Many companies offer online tools to help employees track their loan balances, compare repayment options, and refinance at lower interest rates.
In recent years, a growing number of companies, including Kronos Inc., Hulu and
started paying a fixed amount — often $ 100 to $ 200 per month — for employee loans. Some, like Unum Group, allow employees to apply the value of unused benefits, such as vacation or health insurance, to their loans.
In 2018, healthcare tech company Abbott pioneered another approach. The company pays 5% of salary into the 401 (k) account of one of its 29,000 US employees who spend at least 2% of their income on student loan payments. The worker does not have to contribute to the 401 (k) plan to get the money and must stay with Abbott for two years to keep it.
“We want to help employees start saving early,” said Mary Moreland, executive vice president of human resources at Abbott. “For every decade that you wait to start saving for retirement, the rate you need to save for the rest of your life roughly doubles. “
About half of the 1,000 employees in the program “weren’t contributing to 401 (k) and now they’re saving,” because of the company’s contribution, she said. Participants have an average of $ 47,000 in student loans. The starting salary for an engineer in the company is around $ 80,000 to $ 100,000, Ms. Moreland said.
Harvir Humpal, an engineer, said he joined the program shortly after starting at Abbott in February. A 2018 graduate of California Polytechnic State University, Mr. Humpal, 25, has an undergraduate and master’s degree and $ 60,000 in student debt.
Freed from the need to contribute to the 401 (k) plan to get the match, Mr Humpal said he increased his monthly loan repayment from the minimum of $ 622 to $ 770. He expects to pay off his loans in 10 years rather than 13 years and save $ 7,000 in interest, while Abbott’s 5% annual dues help his 401 (k) grow.
Mr Humpal said the program “was a key component” in his decision to join the company.
Student loans are part of a larger trend in which employers are trying to help workers with more aspects of their financial lives. In addition to retirement planning, a growing number are offering employees online budgeting tools and money to start emergency funds.
Most of the companies that offer student loan assistance do so for loans that employees have for their own education. Some only offer the benefit to new recruits. Unum Group also allows people who have borrowed for their spouse and children to participate.
Of the 45 million Americans with student loans, about 35% are 40 or older, according to the Federal Reserve Bank of New York.
Congress is considering measures that would encourage more businesses to offer these benefits. One would allow businesses to pay up to $ 5,250 per year for tax-free employee loans. Currently, workers have to pay taxes on employer contributions.
Last year, the Internal Revenue Service issued Abbott a ruling indicating that its contributions to the 401 (k) accounts of employees who pay student loans do not violate certain tax regulations. A recently released IRS document says the agency plans to issue broader guidelines for all businesses.
Companies are adding these perks to attract and retain employees in a tight labor market, said Chatrane Birbal, director of policy engagement at the Society for Human Resource Management.
Fidelity Investments spends about $ 13 million per year on the benefit, which is available to 24,000 of its US employees who meet requirements, including having at least six months of seniority, said Cindy Silva, head of financial benefits. The company covers up to $ 2,000 per year per employee for student debt repayment, up to a lifetime maximum of $ 10,000. Currently, approximately 6,000 employees are registered.
Fidelity has seen a 75% reduction in participants’ turnover in the year they join the program, Ms. Silva said. This saves the company the costs of hiring and training new employees. Half of new hires say the benefit is “a major factor in their decision” to join Fidelity, she added.
Write to Anne Tergesen at [email protected]
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