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Companies can now offer employees a “match” for student loan payments in the form of contributions to 401(k) plans, and a small but growing number of employers are taking advantage of this.
Traditionally, companies simply paid workers 401(k) matches based on voluntary contributions to their workplace retirement plans. For example, a worker who chooses to save 3% of their annual salary in a 401(k) may receive a 3% compensation from their employer.
Now, companies can treat workers’ student loan payments like elective 401(k) plan contributions.
Federal law allows employers to match based on workers’ payments toward student loans. Workers generally do not have to contribute to a 401(k) plan to qualify for the funds.
The measures are part of a package of retirement changes called ‘Secure 2.0’, starting in 2024.
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The policy’s goal is to help workers grapple with the dual conflicting financial obligations of paying off debt and saving for retirement at the same time.
According to data from Fidelity, the nation’s largest 401(k) plan administrator, more than 100 companies have implemented the benefit so far, with about 1.5 million employees eligible.
Jesse Moore, Fidelity’s senior vice president and head of student loans, said in an email.
“A lot more [are] There is strong interest in delivering in 2025,” Moore said.
Approximately 5% of employers are already adding benefits, according to an upcoming survey from Alight, one of the nation’s largest retirement plan managers.
A further 12% of employers say they are “very likely” to implement it in 2025, and 29% say they are “moderately likely” to implement it in 2025, according to Alight. The survey was conducted in September among 122 employers (total of 11 million employees).
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Rob Austin, head of thought leadership at Alight, said in an email that interest is growing primarily because of Secure 2.0, which enables enterprises to do just that.
Comcast is among the employers adding student loan 401(k) match benefits next year.
A Comcast spokesperson said the benefits will allow workers to “manage their long-term financial health” in a tax-efficient manner.
Approximately 90,000 U.S. employees are eligible to participate in the match and will receive up to 6% of their eligible annual salaries.
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“Dynamic pricing” was the leading candidate for word of the year.
Experts say some companies are considering matching programs as a way to attract and retain college graduates in competitive fields.
“We hear from many of our employees, especially those early in their careers, that they are struggling with student loans,” a Comcast spokesperson said.
“We are trying to build a value proposition that: [workers’] “We need it,” they said.
According to the Internal Revenue Service, this student loan measure is also available to companies that sponsor other types of workplace retirement plans, such as 403(b) plans, government 457(b) plans, and SIMPLE IRAs.
Student loan benefit system
Brian Dobis, head of retirement solutions at asset management firm Lord Abbett, said the maximum amount of “qualified student loan payments” is typically capped at the annual salary deferral limit. The 401(k) cap will be $23,000 in 2024 for workers under age 50.
Here are some common examples: A 30-year-old man joins a 401(k) plan in 2024. The employee chooses to contribute $18,000 to the plan. If you paid $8,000 in student loans that year, only $5,000 of your repayments ($23,000 minus $18,000) would be eligible for matching, Dobis said.
A worker’s final match amount is determined by the employer’s respective match cap, which is typically set at around 3% to 6% of the worker’s annual salary.
Of course, companies may have slightly different profit structures from each other.
Before Secure 2.0, there were benefits for businesses.
Even before Secure 2.0, employers began offering student loan benefits linked to 401(k)s.
Healthcare technology company Abbott has been offering similar benefits since 2018 through its Freedom 2 Save program, which is believed to be the first of its kind. The company secured a private letter determination from the IRS that it could do so.
Since then, many more companies have followed suit.
For example, in 2022, about 1% of all 401(k) plans will offer a match based on student loan payments or It was planned to be provided. By 2023, that proportion will increase to about 2%, according to the group’s latest poll of 709 employers, due to be released this month.
“Pharmaceutical companies were the first to adopt it, probably because Abbott pioneered the idea and competitors followed suit,” Alight’s Austin said.
According to PSCA, this share increased the most among the largest companies, those with 5,000 or more employees, from 2% in 2022 to almost 5% in 2023.
PSCA research director Hattie Greenan said there appears to be “increasing interest” among companies with large numbers of college-educated workers.
“This number will continue to increase over time as these companies look for ways to differentiate their benefit packages to target top talent and some of the administrative complexities are ironed out,” Greenan said. he said.
Why many companies don’t add student loan matching
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However, most companies are still taking a wait-and-see approach.
For example, 55% of employers say they are “not at all likely” to add this provision in 2025, according to Alight research.
There are several reasons why companies may be reluctant to adopt this measure, and the reasons may vary from company to company, said Ellen Lander, founder of Renaissance Benefit Advisors Group, based in Pearl River, New York. said.
None of her clients have chosen to adopt it yet.
For one thing, employers may already offer different education benefits to their employees. Additionally, without evidence that even companies with student loan debt are delaying 401(k) participation, companies, especially those with large numbers of high-income employees, may feel they don’t need the benefits, he said. said.
Some employers may already make nonelective contributions (perhaps profit-sharing contributions) to workers each year, even for workers who don’t participate in a company 401(k), Lander said. It is said that there is a sex.
Lander said one client viewed the student loan policy as “unfair” because it only applied to a certain group of workers, namely those with student debt.
“I hope all of our clients will discuss this with their consultants,” Lander said. “For me, that’s definitely something to consider. And we need to work on the weeds. Is that necessary?”
Disclosure: Comcast owns NBCUniversal, the parent company of CNBC.
