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The 2% Solution

Abbott Laboratories pioneers innovative student-loan repayment program.


A gold graduation cap and diploma on a white background.


​Amid the tight labor market, student-loan repayment programs are becoming an increasingly popular company benefit as a strategy for retaining young employees who are burdened with education debt. More than 44 million people collectively owe $1.5 trillion in student loans, according to the Federal Reserve. New college graduates' student-loan debt averages $37,172.

Abbott Laboratories has received IRS approval for an innovative plan to resolve the tax issue of student-loan subsidies. A few years ago, Abbott reviewed its benefits offerings in the largest countries where it operates. Many U.S. employees said they couldn't begin saving for retirement because of their student-loan burden, says Mary Moreland, Abbott's divisional vice president of compensation and benefits. "Every decade that you delay, you have to save twice as much to get to the same place in retirement," she says.

Abbott's HR department developed an idea to count employees who contribute at least 2 percent of their paycheck toward their student loans as qualifying for the company's 5 percent 401(k) match. (That's the same percentage employees need to contribute to their 401(k) to qualify for the match.) This plan allows employees to address their student-loan debt, which they viewed as their top priority, while still getting them started on saving for retirement.

In August, Abbott received a letter ruling from the IRS confirming that the company would be allowed to make a pretax 401(k) contribution to match its employees' student-loan payments. (A private letter ruling applies only to the employer that requested it.)

"Some organizations in D.C. have gone to the IRS to ask if there is a way to take part of the letter ruling and turn it into more of a revenue ruling," Moreland says. "We, of course, find that very flattering and exciting, and we'd really love to see this be leveraged more broadly."

Abbott started sign-ups for the new program in August, and Moreland says the company has already enrolled several hundred employees. Some participants weren't saving for retirement because they were focused on paying down debt. Others were already saving for retirement, but now they're choosing to pay off their loans more quickly while still benefiting from Abbott's 401(k) match. To encourage enrollment, Abbott showed that an average new hire would receive $54,000 in retirement contributions over a 10-year period, translating into hundreds of thousands in long-term savings.

"We tend to have more of a long-term view," Moreland says. "We know that the investments we're making in employees today pay off to us in terms of them staying with us, helping us to build our business."

Since the IRS ruling, Jeffrey Holdvogt, a partner at McDermott Will & Emery in Chicago who advises clients on employee benefits, says he's had many discussions with employers that are interested in adopting Abbott's model. "I suspect it's going to accelerate quite a bit," he says.

For more on employee-retention strategies, see To Have and to Hold in SHRM's All Things Work.

Amy Merrick writes about business issues and teaches journalism at DePaul University in Chicago.


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