Student Loan Payment Benefit Gaining Traction by Steff Chalk
Student loan payment programs have been implemented at only 4% of U.S. companies, according to the Society for Human Resource Management (SHRM). However, with the labor market hotter than it has been for a long and unemployment rates at record lows, employers are starting to recognize that student loan payment assistance is a valuable benefit they should strongly considering offering to their workforce. Recent research bears this out. In some cases, employees, especially recent college graduates, are now willing to trade student loan payment assistance for other benefits, like paid time off. In an effort to attract top talent companies are strategically improving the competitiveness of their benefits offerings. A growing number of employers are considering more creative ways to help employees pay down their college debt faster. This ultimately enables employees and employers to “find” room in their finances to budget for longer-term goals, like saving for retirement.
Some employers have implemented student loan payment assistance programs in combination with their 401k plans. Among those companies now offering a student loan matching benefit is Akhia Communications, an Ohio-based public relations, and communications firm. According to Employee Benefit News (EBN), the student loan payment assistance benefit will allow employees to choose whether Akhia’s matching contributions go toward their retirement plan, their student loan debt, or a combination of each. Akhia’s workforce is made up largely of millennials, many being recent college graduates, who have expressed concerns about being able to pay off their student loans. As a result, Akhia plans to roll out this user-friendly benefit to employees in March to alleviate some of their stress associated with eliminating their college debts.
For some employers, one of the hesitations around implementing a student loan payment program in conjunction with their retirement plan is the added complexity. Implementing student loan matching benefits does create additional administrative complexity. Added to the administrative task-list becomes tracking and proving whether or not employees have made their student loan payments in a given month. This is required to verify each participants eligibility for receiving employer matching benefits. However, Akhia has simplified that process by partnering with Thrive, “a new student loan payment benefit provider that works with a company’s 401(k) and allows employers to match funds for student loan repayment.” Some of Thrive’s clients include SSOE Group, an architecture, and planning firm, and Apple Growth Partners, an accounting and finance firm.
Thrive works with an existing 401k plan, so employers need not to be concerned with having to change providers when they add the student loan payment benefit. Via Thrive, employees allocate specific percentages of their compensation toward their student loans and retirement. The money is withdrawn monthly from their account and used to pay down their student loans. The service provider removes the administrative burden from reallocating employee contributions, making it less cumbersome for employers to implement student loan repayment assistance benefits.
The Employee Benefit News article points out considerations for employers who are thinking about implementing a student loan repayment benefit through a provider like Thrive. One is vesting, or the amount of time an employee must remain with a company before qualifying for the full amount of their employer matching contributions. With Thrive, once the employer’s money has been withdrawn from an account to pay down a loan, that money is gone. If an employee leaves the company before they are fully vested in the matching contributions, employers can either choose to let that money go, or elect to have the employee repay the unvested portion, or not allow participation in the matching program until an employee is fully vested. Employers should also consider whether partnering with a provider like Thrive to offer student loan repayment benefits will impact their retirement plan’s compliance testing, which may be mostly an issue for smaller employers, according to EBN.
In August 2018, the IRS issued a private letter ruling allowing Abbott Laboratories to offer a student loan repayment benefit as part of its 401k plan. Full- and part-time Abbott employees who contribute 2% of their salary toward their student loans receive a 5% employer match in their 401k. Employees who contribute 2% to the 401k get the same employer match for retirement.
Employers are continuously looking to improve the competitiveness of their benefits packages to attract and retain top talent. Progressive employers are thinking creatively about how to make employees’ lives better. One way to accomplish that is by taking a serious look at student loan payment programs — a benefit one in five Millennials said they prefer over paid time off. Clearly, employees value student loan payment assistance. Perhaps employers should, too.