New Benefit Lets Employees Trade PTO for Student Loan Relief

Employers continue to roll out new ways to provide workers with student debt relief. Insurance firm Unum, for instance, announced in January that it will let employees exchange accrued but unused paid time off (PTO) for payments against their student loans.

"This innovative solution gives U.S. employees a choice to use their benefits in ways that work best for them," stated Carl Gagnon, Unum's assistant vice president of global financial well-being and retirement programs. The option will be available to any of Unum's U.S. employees who have student debt, including parents who have taken out loans for their children.

Employers are "finding creative solutions for people to tackle this challenging issue," said Ashwini Srikantiah, vice president for student debt programs at Fidelity Investments, which is managing Unum's student debt relief program.

Starting their first year at Unum, full-time employees receive 28 days of PTO, including holidays and personal days, with additional PTO available over time, Gagnon said. Each year, employees can carry over up to five days (40 hours) of unused paid time. Starting in January 2020, participants in the student debt relief program will be able to transfer up to 40 hours of carryover PTO into a payment against student debt.

"Instead of deferring those [accrued PTO] days to take an extra-long vacation in the future, Unum's benefit will provide employees with an extra payment toward their debt, which is at the forefront" of their financial concerns, said Brian Carlson, vice president for wealth management at benefits broker GCG Financial, an Alera Company, in Deerfield, Ill.

Addressing a Need

"We're seeing increased demand for student loan repayment benefits both from employers that want to offer it and from employees electing it as a voluntary benefit," said Jeff Oldham, senior vice president, BenefitsPlace Distribution, at Benefitfocus, a cloud-based benefits management platform firm based in Charleston, S.C. "The solutions we've commonly seen from employers include making direct contributions toward the loan amount or connecting employees to lenders offering lower-than-average interest rates to refinance or bundle their loans. The utilization of unused PTO to fund student debt demonstrates a creative way to tackle the issue."

Bobbi Kloss, director of human capital management services for the Benefit Advisors Network, a Cleveland-based consortium of health and welfare benefit brokers, praised Unum for allowing employees to decide how they receive their rolled-over PTO but added, "Digging deeper, it would be worth asking how much rolled-over PTO employees have accumulated. With that in mind, what does Unum's work/life balance culture look like," given that the goal of paid vacation is to allow employees to relax and return to work with renewed vigor.

"I'm a big believer that employees need to get out and get away from the office, so it's important to be careful not to incentivize employees to not use their PTO," said Bill Gimbel, president of LaSalle Benefits, a technology-driven corporate benefits firm in Northbrook, Ill. He added, "If an employee is strategic, they could save a few of their days and still take some of their PTO and get the best of both worlds."

Kloss noted that most U.S. companies "are clearly still a long way from having a workforce where everyone uses the full PTO benefits provided to them."

She encouraged other employers to analyze their current programs "to see what is working, what is not, and what efficiencies can be found within the programs to meet current workforce needs."

[SHRM members-only toolkit: Designing and Managing Educational Assistance Programs]

Protecting Retirement Savings

Student debt now tops an estimated $1.5 trillion in the U.S., the Federal Reserve estimates. Monthly student loan payments can leave employees struggling to contribute to other important savings goals and benefits, such as 401(k) retirement accounts.

Last year, Abbott Laboratories launched a program to aid employees who contribute at least 2 percent of their eligible pay to their student loans through payroll deduction. These employees can receive an amount equivalent to the company's 401(k) match—5 percent of the employee's compensation—deposited to their 401(k) accounts even if they don't otherwise contribute to their 401(k).

The IRS approved of Abbott's student loan benefit plan in a private letter ruling, although broader IRS guidance is still to come. Among issues to be addressed, the letter ruling approved a specific plan design with a regular 401(k) match and a student loan repayment match that were subject to nondiscrimination testing, leaving it unclear if a plan with a 401(k) safe harbor design, such as one depending on matching contributions to satisfy an actual deferral percentage (ADP) testing safe harbor, would pass the same muster with the IRS, benefits consultants said.

Nevertheless, as other employers have begun following Abbott's example, service providers such as Thrive have started offering a 401(k)-match feature within their employer-assisted student loan repayment products.

Fresh Takes on a Big Problem

Unum and Abbott both use current benefits—payment for accrued but untaken PTO and 401(k) match contributions, respectively—to support student loan repayment. "Helping employees to repay student loans by redirecting existing benefit dollars, rather than funding what could be an expensive new benefit, is a cost-effective strategy," Gimbel said.

"While student loan repayment assistance isn't an expensive benefit to roll out, it's an expensive benefit for employers to fund," Gimbel pointed out. "It also isn't a benefit that meets the needs of all employees," which can raise concerns that a limited amount of benefit dollars is being used to aid mostly younger employees at the expense of others.

Older employers also can be burdened by high student debt, however, as The Wall Street Journal recently reported, because they've taken out loans to pay for their children's college education or so that they could go back to school to boost their own employment prospects. On average, student loan borrowers in their 60s owed $33,800 in 2017, up 44 percent from 2010, according to data compiled for the Journal by credit-reporting firm TransUnion.

Refinancing Aid

Employers can also help employees refinance their student debt, Carlson said. While many individual loans charge interest in the 6 percent to 9 percent range, he noted, large companies, especially, can negotiate with a bank or loan firm to consolidate and refinance employees' student debt at a lower interest rate.

Loan refinancing firms such as SoFi, Splash Financial, Commonbond and Laurel Road "are all offering much more competitive rates than the federal programs and most university loans," he said.