Retirement Savings Or Student Loan Repayment? Employees May Do Both With The Aid Of SECURE 2.0.

Employers could improve 401(k) plans by incorporating a student loan retirement match if the proposed legislation becomes law (which is anticipated to be enacted by Congress by the end of 2022).

Many younger workers find it difficult to save for retirement because of their student loan obligations.

According to a 2019 survey by MIT Age Lab and TIAA, eight out of ten adults with school debts stated their debt was restricting their capacity to save for retirement. Employers may provide a sizable retirement match, but they discover that employees do not take use of it since they must pay a sizable monthly student loan payment, while colleagues who do not have student debt accumulate savings.

As part of SECURE 2.0, a broad package of retirement improvements under consideration in Congress, assistance could be on the way. Bipartisan support exists for one aspect of the proposed legislation that would let businesses count employee student loan repayments toward their retirement match, effectively raising employees’ retirement contributions.

The final law still needs to be amended to clarify the following points:

• What proof will the company need that the employee made a legitimate student loan payment?
• Could a straightforward employee attestation suffice?
• When does the student loan match commence in full?

Abbott Laboratories was able to adopt a student loan retirement match in their employee 401(k) according to the 2018 Abbott Private Letter Ruling (k). Employers had been waiting for more comprehensive regulatory advice, such as whether the match would be applicable to 403(b) plans. Employers outside of Abbott would receive this clarification from SECURE 2.0, and 403(b) plans would be covered.

One illustration is a 25-year-old employee who makes $50,000 annually and makes $500 monthly student loan payments on her $47,000 balance. Even though she qualifies for a 5% retirement match worth $208 each month, she isn’t making contributions right now. She could confirm her monthly student loan payment with the student loan retirement match, and her employer would put $208 into her 401(k) or 403(b) (b). They will probably realize the importance of that retirement account and match once they begin to pay off their student loans and start making more direct contributions.

Savi, a firm that offers student loan benefits, has just released a paper titled Student Loan Retirement Match and What It Means for Employers. In a paper co-founded by Aaron Smith, Savi advises businesses to think about two issues before implementing a student debt retirement match:

Does Public Service Loan Forgiveness apply to employees? There are a number of important advantages to combining this benefit with a student loan retirement match. Employees will pay less interest on their student loans, which will lower the overall cost of the student loan retirement match program, and boost their retirement savings.

How do student loans fit into the larger financial wellness program of an organization? Employees face a number of severe financial challenges in addition to student loan debt. It’s crucial to consider how student loan perks and a retirement match for student loans can fit into larger initiatives for employee financial wellbeing.

Source: https://www.benefitspro.com/2022/10/17/save-for-retirement-or-pay-off-student-loans-secure-2-0-will-help-employees-do-both/