Many workers with student loans postpone saving for retirement. Now, a handful of companies are trying to prevent them from falling behind on retirement savings by matching their student-loan repayments with contributions to a 401(k) plan.
In recent months, companies including Abbott Laboratories, Travelers Co's., and Raytheon Co. have either launched or announced plans for such programs. The companies join a growing number of others that are helping workers reduce student debt in other ways, including making direct payments to lenders.
“This is a critical need,” said Carl Gagnon,
assistant vice president of global financial
well-being at Unum Group. Starting Jan. 1,
the insurer will allow its 8,500 U.S. employees
to cash in up to five of their days off a year—
they get at least 28—for student-loan
repayments. “Studies suggest rising student-
loan debt is hurting employees’ well-being,
focus at work, and retirement planning,”
he said.
Eight percent of the 2,763 employers the Society for Human Resource Management surveyed in April offered assistance with student loans, up from 4% in 2018 and 3% in 2015. According to a survey of 250 companies last year by the Employee Benefit Research Institute, 11% of employers offered student-loan repayment subsidies and another 13% planned to add it.
Americans have $1.5 trillion in student-loan debt, up from $346 billion at the end of 2004, according to the Federal Reserve Bank of New York. After mortgages, student loans are the second-largest debt category. More than two-thirds of recent college graduates have student debt. Among those with debt, the average balance is $29,900, according to Mark Kantrowitz, publisher of Savingforcollege.com.
Geoff Sanzenbacher, research fellow at Boston College’s Center for Retirement Research, said that people with student debt often get “a late start on saving in a 401(k) plan,” potentially reducing their retirement wealth. According to the center, college graduates with student loans who were born between 1980 and 1984 had 50% less in their 401(k) plans by age 30 than peers without the loans.
Employer assistance with extinguishing that debt comes in a number of forms. Many companies offer online tools to help employees track their loan balances, compare repayment options, and refinance at lower interest rates.
In recent years, a growing number of companies including Kronos Inc., Hulu and HP Inc. have started to pay a fixed amount—often $100 to $200 a month—toward employees’ loans. Some, like Unum Group, allow employees to apply the value of unused benefits, such as vacation time or health insurance, to their loans.
In 2018, health-technology company Abbott pioneered another approach. The company puts 5% of salary into the 401(k) account of any of its 29,000 U.S. employees who devote at least 2% of income to student-loan payments. The worker doesn’t have to contribute to the 401(k) plan to get the money and must remain at Abbott for two years to keep it.
“We want to help employees get started
on saving early,” said Mary Moreland,
executive vice president of human
resources 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 employees in the
program “were not contributing to the 401(k)
and now they are saving,” due to the
company contribution, she said. Participants
on average have $47,000 in student loans.
The starting salary for an engineer at the
company is about $80,000 to $100,000,
said Ms. Moreland.
Harvir Humpal, an engineer, said he joined
the program soon after starting at Abbott
in February. A 2018 graduate of California
Polytechnic State University, Mr. Humpal,
25, has an undergraduate and a master’s
degree and $60,000 in student debt.
Freed from the need to contribute to the
401(k) plan to get the match, Mr. Humpal
said he has raised his monthly loan
repayment from the $622 minimum to $770.
He expects to pay off his loans in 10,
rather than 13, years and save $7,000 in
interest, while Abbott’s 5% annual
contributions help his 401(k) grow.
Mr. Humpal said the program “was a
linchpin” in his decision to join the company.
Student-loan benefits are part of a broader
trend in which employers are trying to help
workers with more aspects of their financial
lives. In addition to retirement planning,
a growing number are offering employees
online budgeting tools and cash to start
emergency funds.
Most companies that provide student-loan assistance do so for the loans employees have for their own educations. Some offer the benefit only to new hires. Unum Group is allowing people who have borrowed for spouses and children to participate, too.
Among the 45 million Americans with student loans, about 35% are age 40 or older, according to the Federal Reserve Bank of New York.
Congress is considering measures that would encourage more companies to offer these benefits. One would allow companies to pay up to $5,250 annually toward employees’ loans tax-free. Currently, workers must pay income tax on employers’ contributions.
The Internal Revenue Service last year gave Abbott a ruling indicating its contributions to the 401(k) accounts of employees paying student loans don’t violate certain tax regulations. A recently posted IRS document indicates the agency is considering publishing broader guidance for all companies.
Companies are adding these benefits to attract and retain employees amid a tight labor market, said Chatrane Birbal, director of policy engagement at the Society for Human Resource Management.
Fidelity Investments spends about $13 million a year on the benefit, which is available to 24,000 of its U.S. employees who meet requirements including having at least six months of tenure, said Cindy Silva, head of financial benefits. The company covers up to $2,000 a year per employee for student debt repayment, up to a lifetime maximum of $10,000. Currently, about 6,000 employees are enrolled.
Fidelity has seen a 75% reduction in turnover among participants in the year they join the program, said Ms. Silva. That saves the firm the costs of hiring and training new employees. Half of new hires say the benefit is “a major factor in their decision” to join Fidelity,
she added.
Workers at Abbott Laboratories in Pleasanton, Calif. ‘We want to help employees get started on saving early,’ says Mary Moreland, the company’s executive VP of human resources. PHOTO: JASON HENRY FOR THE WALL STREET JOURNAL
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