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“Genius” Feature in DC Plans Helps Employees Pay Off Student Loans

Younger workers face a dilemma. On the one hand, they know that they have to save for retirement without the benefit of corporate DB plans and perhaps even Social Security when they retire but on the other hand, they face massive debt from student loans as they begin their work career. Prudential, partnering with a startup, Student Loan Genius, is offering an innovative solution.

Employers sponsoring a defined contribution (DC) plan can help their workers with student loans by matching loan payments through contribution to the company’s retirement plan whether the employee is contributing or not. It gets these workers saving early even if they cannot contribute and provides a corporate benefit available to the rest of the work force. It’s actually quite clever and might be an attractive recruiting tool as the economy continues to improve and companies fight for the best talent.

[graphiq id=”9rh80iZPsMt” title=”U.S. Consumer Debt Over Time” width=”600″ height=”613″ url=”https://w.graphiq.com/w/9rh80iZPsMt” link=”https://www.graphiq.com” link_text=”Visualization by Graphiq”]

According to a recent study by Boston College’s Center for Retirement Research (BC CRR), younger workers burdened with student loans may be unable to adequately save. In 2013, 55% of workers in their 20’s had an average student loan of $31,000; student loans have grown from $20 billion in 2003 to $1.2 trillion in 2015 and account for 30% of non-mortgage debt for younger workers exceeding credit cards.

[graphiq id=”bv1IwKdYb3f” title=”Historical Aggregate Student Loan Debt” width=”600″ height=”492″ url=”https://w.graphiq.com/w/bv1IwKdYb3f” link=”https://colleges.startclass.com” link_text=”Historical Aggregate Student Loan Debt | StartClass”]

Even the smallest amount in a retirement account that starts can make a big difference. At a TPSU program held at Stonehill College, a plan sponsor told a story about one employee was forced to move and did not have the money for the security deposit. She desperately turned for help to her employer who informed her that she had money in her retirement plan account to cover the deposit and could take out a loan to cover the expense. The employee did not even realize that they money was there – which is another issue with best ways to communicate with employees about benefits. The deposit was minimal so paying back the loan in a timely fashion was not a problem but there was a big benefit overall. Seeing the value of the 401(k) plan, the employee decided to start contributing on her own.

Making an impact on employees’ retirement readiness does not always cost money – being creative and communicating the benefits sometimes have a greater impact.

Fred Barstein

Fred Barstein

Founder & Editor-in-Chief at 401kTV | TRAU | TPSU
Fred Barstein is the Founder & Editor-in-Chief of 401kTV. Fred is also the Founder and CEO of The Retirement Advisor University (TRAU), a collaboration with UCLA Anderson School of Management Executive Education and The Plan Sponsor University (TPSU).Mr. Barstein was also Founder and Editor-in-Chief of NAPA Net.
Fred Barstein
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