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Sept. 13 — Paying down student loan debt is hard enough without worrying about saving for retirement.
More than 40 million Americans have some form of student loan debt and it all totals approximately $1.3 trillion, according to Federal Student Aid. Conversely, only 4 percent of employers offered some sort of student loan repayment benefit in 2016, according to the Society for Human Resource Management.
It’s pretty much common knowledge that people need to save more for retirement, with federal and state governments trying to encourage Americans to save for their later years through regulations encouraging lifetime income options and state-run programs. Congress is getting in on the act as well, including proposing legislation that would make it easier for small employers to join multiple employer plans without worrying about violations of the Employee Retirement Income Security Act—something the Obama administration has proposed.
There’s a little bit of a different twist on the idea of saving more for retirement brewing that wouldn’t require workers to eschew such saving while working to pay off debt like student loans. Draft legislation that was released Sept. 8 by Senate Finance Committee ranking member Ron Wyden (D-Ore.) proposes to allow employers to make matching contributions to 401(k) plans for employees who made student loan payments but weren’t able to afford to also contribute to their 401(k). The proposal would allow employers to treat student loan payments as elective 401(k) contributions.
“It is difficult for many Americans, especially younger workers, to save for retirement while also paying off their student loans. However, those employees miss out on essentially ‘free money’ by not taking advantage of employer matching contributions to 401(k) plans,” according to a summary of the draft legislation.
One company, Austin, Texas-based Student Loan Genius, is already providing a way for employers to make a contribution to an employee’s 401(k) account every time he or she makes a student loan payment.
Through the company’s program, Student Loan 401(k) Contribution, the employee makes a student loan payment, which is then verified by the program. Once the payment is verified, it triggers a contribution to the employee’s 401(k) plan, Tony Aguilar, chief executive officer of Student Loan Genius, told Bloomberg BNA.
Offering the benefit may require some employers to make a small amendment to their 401(k) plan, Aguilar said. The company currently is working with about 65 employers and has plans to expand. Prudential Retirement announced in March that it would offer Student Loan Genius’ 401(k) contribution feature.
Something like this might be attractive to employers looking to help employees with their student loans, Will Hansen, senior vice president for retirement policy at the ERISA Industry Committee, told Bloomberg BNA.
“I think companies in general are just trying to be creative on this topic” because student loans are such a big issue right now, he said.
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