Employers can offer a new benefit: Matching student loan payments with 401(k) contributions
A study finds participants are likely to be better off than without the benefit.
Lately, employers have been using some tricks to sweeten the pot for their employees without actually increasing their paychecks. They’re doing things like offering flexible work arrangements, tweaking company cultures and, of course, attractive benefits.
In that last category, some companies have been rolling out programs that let workers reduce their student loan debt burden today while saving for retirement tomorrow.
Back in 2018, the medical device maker Abbott found many of its younger employees were facing a financial quandary.
“Sometimes they have to make a choice: Pay school debt or save for retirement,” said Diego Martinez, Abbott’s vice president of benefits.
He said student debt was preventing workers from paying into their 401(k) plans, which meant they were giving up on the company’s matching contribution. Abbott decided to make the contributions anyway, provided the employees were paying their loans.
“The program that we created was the first of its kind, so we really had to pave our way,” Martinez said.
Back then, that meant getting a special letter of permission from the IRS. But a new law taking effect this year allows any employer to offer retirement matching of student loan payments.
“There’s certainly a lot of Americans with a lot of student loan debt who might be excited about this,” said Olivia Mitchell at the Wharton School.
She co-authored new research on how this policy could play out for workers in the long run. Short answer: pretty well. “This policy would allow workers to consume more, actually to spend more out of their earnings by about 3% more prior to retirement,” she said.
The new benefit comes with some costs for companies. Like figuring out new tax rules, and making sure participants are actually making their loan payments.
Still, a growing number of companies are starting to offer the match.
“We’d been looking at student loan debt for a long time now,” said Marco Diaz, global head of benefits for News Corp.
The firm rolled out loan matching this year. Diaz said it wasn’t just fresh-from-college new employees who took advantage.
“We’re also getting parents of children who have taken on student loan as a parent, maybe for the second time in their life,” he said.
Diaz said the program has convinced candidates to accept New Corp’s offers over competitors’.