The student loan debt crisis is so significant that a broad array of employers consider student loan assistance a substantial value-add to their employee offerings. Student loan repayment assistance is now becoming a priority for many employers because of the looming expiration of federal student loan forbearance enacted during Covid-19. The interest in various types of SLRAs has increased this year, in part as a result of the passage of SECURE 2.0 in December 2022.
A SLRA program may consist of one or more of the following features to help promote financial well-being through student loan optimization: employer-paid student loan repayment; SECURE 2.0 matching student loan payments; and guidance, education, tools or refinancing options.
Prior to SECURE 2.0, more employers began offering SLRAs after the passage of the CARES Act in 2020, which allowed companies to pay off employees’ student loans without owing federal income tax on payments, up to a certain threshold. The typical SLRA that provides employer-paid student loan repayment is a direct payment from the employer to the student loan administrator, with $100 to $150 per month being the most common amount, to help employees pay down their debt. However, the CARES Act student loan repayment assistance is currently set to expire at the end of 2025.
A new benefit that SECURE 2.0 allows employers to offer on a permanent basis is a match in the retirement account tied to employees’ student loan repayments. Beginning in 2024, employers can make matching contributions to employees’ retirement accounts, essentially to reward them for making payments toward their student loans. The demand for such assistance is undoubtedly there: According to Mercer's latest Inside Employees' Minds survey, an employer match contribution for paying down student debt was the second most in-demand feature in defined-contribution plans for employees under 45, just behind increasing employer match contributions.
According to the Employee Benefit Research Institute, more than 20% of American families have student loan debt, and the impact of this burden on saving for retirement cannot go overlooked. Although the CARES Act temporarily opened up a new avenue for employers to help support financial wellness, SECURE 2.0’s student loan match could be a meaningful long-term benefit for employees otherwise forced to choose between saving for retirement and paying student loan debt. It may be particularly beneficial to Black or African American families, who have a higher student loan prevalence of 30%, compared to white families at 20% and Hispanic families at 14%, according to EBRI.
The frequency of student loan debt means SLRAs are a valuable lever for employers, too. While improving overall financial well-being and employee satisfaction, the programs may also increase awareness of and participation in retirement contribution programs like 401(k) plans.
While there are many benefits to offering SLRAs, like the SECURE 2.0 student loan matching program, employers may face two potential challenges: cost and complexity. Depending on the program’s structure and the makeup of their workforce, employers should weigh the potential benefits with the financial implications, as retirement plans can often be the biggest item on a company’s bottom line. These programs can also create additional administrative complexity, so employers should work closely with their payroll and benefits providers to ensure that the program is properly structured and administered.
Plan sponsors should be on the lookout for additional guidance from government agencies on SECURE 2.0's student loan match. That guidance will likely address a number of technical issues, such as procedures for employees to claim their student loan match, frequency of the matching contributions and sample plan amendment language.
Employers should also consider which employee groups would benefit most from this feature and communicate all the options available to employees, including student loan optimization programs and tools to help with consolidation. If a significant percentage of employees have student debt, a SLRA tied to a retirement plan could be a great way to attract and retain top talent. However, suppose only a tiny percentage of a company's employees have student loan debt, or most employees with student loan debt are contributing to the DC plan at adequate levels. In that case, a program tied to the DC plan may not be worth the cost, but there are other student loan repayment programs available outside the DC plans that are often attractive to employers and their employees.
SECURE 2.0 offers one promising tool to help address the student loan debt crisis while promoting overall employee financial well-being. Employers who take advantage of this provision by making matching contributions for expenses that are often a significant portion of income, like student loans, can help employees build their nest egg early, and even support diversity, equity and inclusion initiatives. But employers must carefully tailor their programs to meet the unique needs of their workforce to improve employee satisfaction and retention while strengthening their retirement readiness.
Sara Vipond is U.S. defined contribution research consultant at Mercer.
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