More employers add 401(k) plan match for workers paying student loans

Firms can now provide their employees a “match” on their pupil mortgage funds within the type of a contribution to their 401(okay) plan — and a small however rising variety of employers are benefiting from the choice.

Historically, corporations have solely paid a 401(okay) match to employees based mostly on their voluntary contributions to the office retirement plan. A employee selecting to save lots of 3% of their annual pay in a 401(okay) may get a 3% match from their employer, for instance.

Now, corporations can deal with a employee’s pupil mortgage funds like an elective 401(okay) plan contribution.

Federal legislation permits employers to offer a match based mostly on a employee’s funds towards pupil debt. Staff typically do not must contribute to the 401(okay) plan to qualify for the funds.

The measure, a part of a package deal of retirement modifications dubbed Safe 2.0, kicked in beginning in 2024.

The coverage’s objective is to assist employees deal with two competing monetary obligations: paying down debt and concurrently saving for retirement.

Greater than 100 corporations have applied the profit to this point, masking virtually 1.5 million eligible workers, in keeping with knowledge from Constancy, the nation’s largest 401(okay) plan administrator.

They embody “a number of the largest companies within the U.S.,” comparable to Kraft, Workday and Information Corp., Jesse Moore, senior vice chairman and head of pupil debt at Constancy, stated in an e-mail.

“Many extra [are] displaying sturdy curiosity in providing it in 2025,” Moore stated.

About 5% of employers have already added the profit, in keeping with forthcoming survey outcomes from Alight, one of many largest U.S. retirement plan directors.

An extra 12% of employers say they’re “very possible” to undertake it in 2025, whereas 29% are “reasonably possible” to take action, in keeping with Alight. It polled 122 employers, with a complete of 11 million employees, in September.

Curiosity within the profit has grown largely on account of Safe 2.0, Rob Austin, head of thought management at Alight, stated in an e-mail.

Comcast is among the many employers including a pupil loan-401(okay) match profit in 2025. A Comcast spokesperson stated providing the profit will assist employees “handle their long-term monetary wellness” in a tax-efficient manner.

About 90,000 U.S. workers are eligible for the match, on as much as 6% of their eligible annual earnings, the spokesperson stated.

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Some corporations additionally see the match program as a method to appeal to and retain faculty graduates in aggressive fields, specialists stated.

“We have heard from many workers that they battle with pupil loans,” particularly these early of their careers, the Comcast spokesperson stated. “We’re making an attempt to construct a price proposition that meets [workers’] wants.”

The scholar mortgage measure can also be out there to corporations that sponsor different kinds of office retirement plans, comparable to 403(b) or governmental 457(b) plans or SIMPLE IRAs, in keeping with the Inner Income Service.

The utmost quantity of “certified pupil mortgage funds” is usually the annual wage deferral, or contribution, restrict, in keeping with Brian Dobbis, retirement options lead at Lord Abbett, a cash supervisor. That 401(okay) restrict is $23,000 in 2024 for employees below age 50.

This is a basic instance: A 30-year-old participates in a 401(okay) plan in 2024. The employee chooses to contribute $18,000 to the plan. If additionally they pay $8,000 towards their pupil loans that yr, solely $5,000 ($23,000 minus $18,000) of these repayments is eligible to be matched, Dobbis stated.

The employee’s final match quantity is dictated by employers’ respective match cap, generally set round 3% to six% of a employee’s annual wage.

After all, corporations might construction the profit considerably otherwise from each other.

Employers had begun providing a 401(okay)-linked pupil mortgage profit even earlier than Safe 2.0.

Abbott, a health-care expertise firm, has supplied an identical profit since 2018, by way of its “Freedom 2 Save” program, which was considered the primary of its type. The corporate secured a personal letter ruling from the IRS to have the ability to achieve this.

Extra corporations have adopted since.

In 2022, for instance, about 1% of all 401(okay) plans have been providing or deliberate to supply a match based mostly on pupil mortgage funds, in keeping with an annual survey by the Plan Sponsor Council of America, a commerce group. By 2023, that share had elevated to about 2%, in keeping with the group’s newest ballot, of 709 employers, set to be revealed this month.

“Pharmaceutical corporations are among the many earliest adopters, most definitely as a result of Abbott pioneered this concept, and opponents adopted,” stated Austin of Alight.

The share jumped most — to virtually 5% in 2023 from 2% in 2022 — among the many largest companies, or these with greater than 5,000 workers, PSCA discovered.

It appears there was “elevated curiosity” amongst companies with an enormous cohort of college-educated employees, stated Hattie Greenan, PSCA’s analysis director.

“We are going to proceed to see this quantity slowly enhance as these corporations search for methods to distinguish their advantages packages to compete for prime expertise, and as a number of the administrative complexities are labored out,” Greenan stated.

Nonetheless, most corporations are nonetheless sitting on the sidelines.

For instance, 55% of employers say they’re “in no way possible” so as to add the availability in 2025, in keeping with Alight’s survey.

There are a couple of causes companies might not need to implement the measure, stated Ellen Lander, founding father of Renaissance Profit Advisors Group, based mostly in Pearl River, New York.

For one, employers might already provide a unique schooling profit to their workforce. Additional, corporations, particularly these with many larger earners, might not really feel they want the profit if there is not proof of lagging 401(okay) participation even amongst these with pupil debt, she stated.

Some employers might already make a non-elective contribution to employees every year, comparable to a profit-sharing contribution, even to employees who do not take part within the firm 401(okay), Lander stated.

Lander stated considered one of her purchasers considered the scholar mortgage coverage as “unfair,” because it utilized to solely a sure subset of employees, i.e., these with pupil debt.

She stated none of her purchasers have but chosen to undertake it.

“I’d hope each shopper is discussing it with their marketing consultant,” Lander stated. “To me, it is one thing you must positively contemplate. After which it’s good to get into the weeds: Do you want it?”

Disclosure: Comcast owns CNBC mother or father firm NBCUniversal.