Employers Try a New Perk: Matching Student Loan Payments With 401(k) Contributions

Employers Try a New Perk: Matching Student Loan Payments With 401(okay) Contributions

Many staff with student loans postpone saving for retirement. Now, a handful of firms try to forestall them from falling behind on retirement financial savings by matching their student-loan repayments with contributions to a 401(okay) plan.

In latest months, firms together with

Abbott Laboratories,

ABT -0.05%


Cos. and

Raytheon Co.

have both launched or introduced plans for such applications. The firms be part of a rising variety of others which might be serving to staff cut back student debt in different methods, together with making direct funds to lenders.

“This is a critical need,” mentioned

Carl Gagnon,

assistant vice chairman of worldwide monetary well-being at

Unum Group.

Starting Jan. 1, the insurer will permit its 8,500 U.S. workers to money in as much as 5 of their days off a 12 months—they get at the very least 28—for student-loan repayments. “Studies suggest rising student-loan debt is hurting employees’ well-being, focus at work, and retirement planning,” he mentioned.

Eight p.c of the two,763 employers the Society for Human Resource Management surveyed in April supplied help with student loans, up from 4% in 2018 and three% in 2015. According to a survey of 250 firms final 12 months by the Employee Benefit Research Institute, 11% of employers supplied student-loan reimbursement subsidies and one other 13% deliberate so as to add it.

Americans have $1.5 trillion in student-loan debt, up from $346 billion on the finish of 2004, in line with the Federal Reserve Bank of New York. After mortgages, student loans are the second-largest debt class. More than two-thirds of latest school graduates have student debt. Among these with debt, the typical steadiness is $29,900, in line with

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Mark Kantrowitz,

writer of Savingforcollege.com.

Workers at Abbott Laboratories in Pleasanton, Calif. ‘We want to help employees get started on saving early,’ says the corporate’s govt vice chairman of human assets.


Jason Henry for The Wall Street Journal

Geoff Sanzenbacher,

analysis fellow at Boston College’s Center for Retirement Research, mentioned that individuals with student debt usually get “a late start on saving in a 401(k) plan,” doubtlessly lowering their retirement wealth. According to the middle, school graduates with student loans who have been born between 1980 and 1984 had 50% much less of their 401(okay) plans by age 30 than friends with out the loans.

Employer help with extinguishing that debt is available in quite a lot of kinds. Many firms provide on-line instruments to assist workers observe their loan balances, evaluate reimbursement choices, and refinance at decrease rates of interest.

In latest years, a rising variety of firms together with Kronos Inc., Hulu and

HP Inc.

have began to pay a set quantity—usually $100 to $200 a month—towards workers’ loans. Some, like Unum Group, permit workers to use the worth of unused advantages, equivalent to trip time or well being insurance, to their loans.

In 2018, health-technology firm Abbott pioneered one other method. The firm places 5% of wage into the 401(okay) account of any of its 29,000 U.S. workers who dedicate at the very least 2% of earnings to student-loan funds. The employee doesn’t should contribute to the 401(okay) plan to get the cash and should stay at Abbott for 2 years to maintain it.

“We want to help employees get started on saving early,” mentioned

Mary Moreland,

govt vice chairman of human assets at Abbott. “For every decade 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 workers in this system “were not contributing to the 401(k) and now they are saving,” because of the firm contribution, she mentioned. Participants on common have $47,000 in student loans. The beginning wage for an engineer on the firm is about $80,000 to $100,000, mentioned Ms. Moreland.

Harvir Humpal,

an engineer, mentioned he joined this system quickly after beginning at Abbott in February. A 2018 graduate of California Polytechnic State University, Mr. Humpal, 25, has an undergraduate and a grasp’s diploma and $60,000 in student debt.

Freed from the necessity to contribute to the 401(okay) plan to get the match, Mr. Humpal mentioned he has raised his month-to-month loan reimbursement from the $622 minimal to $770. He expects to repay his loans in 10, moderately than 13, years and save $7,000 in curiosity, whereas Abbott’s 5% annual contributions assist his 401(okay) develop.

Mr. Humpal mentioned this system “was a linchpin” in his resolution to affix the corporate.

Student-loan advantages are a part of a broader pattern through which employers try to assist staff with extra elements of their monetary lives. In addition to retirement planning, a rising quantity are providing workers on-line budgeting instruments and money to start out emergency funds.

Harvir Humpal mentioned Abbott’s program ‘was a linchpin’ in his resolution to affix the corporate.


Jason Henry for The Wall Street Journal

Most firms that present student-loan help accomplish that for the loans workers have for their very own educations. Some provide the profit solely to new hires. Unum Group is permitting individuals who have borrowed for spouses and youngsters to take part, too.

Among the 45 million Americans with student loans, about 35% are age 40 or older, in line with the Federal Reserve Bank of New York.

Congress is contemplating measures that may encourage extra firms to supply these advantages. One would permit firms to pay as much as $5,250 yearly towards workers’ loans tax-free. Currently, staff should pay earnings tax on employers’ contributions.

The Internal Revenue Service final 12 months gave Abbott a ruling indicating its contributions to the 401(okay) accounts of workers paying student loans don’t violate sure tax laws. A lately posted IRS doc signifies the company is contemplating publishing broader steering for all firms.

Companies are including these advantages to draw and retain workers amid a good labor market, mentioned

Chatrane Birbal,

director of coverage engagement on the Society for Human Resource Management.

Fidelity Investments spends about $13 million a 12 months on the profit, which is accessible to 24,000 of its U.S. workers who meet necessities together with having at the very least six months of tenure, mentioned

Cindy Silva,

head of economic advantages. The firm covers as much as $2,000 a 12 months per worker for student debt reimbursement, as much as a lifetime most of $10,000. Currently, about 6,000 workers are enrolled.

Fidelity has seen a 75% discount in turnover amongst individuals within the 12 months they be part of this system, mentioned Ms. Silva. That saves the agency the prices of hiring and coaching new workers. Half of recent hires say the profit is “a major factor in their decision” to affix Fidelity, she added.

Write to Anne Tergesen at [email protected]

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