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There are many options for integrating 529 plans into employee benefit offerings
Employers interested in helping employees manage their financial lives should not overlook the importance of saving for college expenses. If the goal of financial support is to improve employees’ overall well-being and productivity, employees’ stress about looming college expenses for their children, grandchildren or even for themselves can often be overwhelming. However, with a small amount of effort and cost, employers could help to alleviate some of that anxiety.
“This is one more benefit that employers can offer that is very low cost and pretty easy to set up,” said Betty Lochner, chair of the College Savings Plans Network (CSPN). “If [employers] offer a match, these plans can be a good retention tool.”
Although not widespread, some employers offer access to 529 college savings plans through an optional payroll deduction and a few even make some level of matching or discretionary contributions to employees’ accounts. The PlanSponsor 2013 Defined Contribution Survey found that just 8.3 percent of the 5,342 plan sponsors surveyed offer a 529 college savings plan, with a significant number of those plans concentrated among larger employers. The Society for Human Resource Management’s (SHRM’s) 2014 Employee Benefits survey report, which polled SHRM members, found that just 6 percent worked at organizations that offered a 529 plan last year. But SHRM’s 2015 survey report, to be released on June 30, shows that 11 percent offered a 529 plan this year.
The plans are steadily growing in popularity: The number of individual accounts stood at 12.1 million at year-end 2014, up from 11.6 million in 2013, according to data compiled by the CSPN. That data also shows that the average 529 account holding was $20,474, with new contributions going into 53 percent of accounts in 2014.
A 529 plan allows individuals to save money to cover higher education expenses for themselves or for another beneficiary. There are two types of 529 plans that are offered by all 50 states and, in some cases, educational institutions.
• Savings plans are just that—plans that allow employees to save money to pay for higher education expenses. Each state offers its own 529 college savings plan. Employees do not have to live in a given state to take advantage of that state’s 529 plan. In other words, an employee who is a resident of Florida is not limited to the plan offered by the state of Florida; he or she can choose a plan from any state. However, many states offer incentives, like state income tax deductions for contributions, to current residents only. Employers that want to offer 529 plans from a number of states can partner with a vendor, like CSPN, that offer access to plans from multiple states.
• Prepaid tuition plans, offered by individual states and educational institutions, allow individuals to pay tuition in advance at one or more schools. There is also a private vendor option offering prepaid tuition 529 plans for schools participating in its network.
The main benefit of 529 college savings plans, aside from being a savings vehicle, is that all earnings and interest from the assets in these plans are not subject to federal taxes and often are not subject to state taxes as long as the funds are used to pay for qualified education expenses, such as tuition, books, and room and board, on behalf of the beneficiary. In addition, many states allow residents who have enrolled in that state’s plan to deduct contributions up to a certain amount from their state income tax. Deductible amounts can range from a few hundred to several thousand dollars.
Employers concerned about adding to their benefit costs have a number of options available. “In many cases, the first questions we get from employers are, ‘How much will it cost?’ and ‘Do I have to match contributions?’” said Winnie Sun, managing director with Sun Group Wealth Partners in Irvine, Calif., and founder of the Campaign for Next Generation Employees website, which educates corporate executives on the importance of helping employees save for education expenses. “Getting executives on board with offering a plan is much easier when those executives have children themselves,” she said.
The first step for employers is to determine what role they want to play in helping employees save for education expenses. This role can range from simply offering information about the existence of 529 college savings plans and how they work, to allowing payroll deductions to fund these plans and offering starter or matching plan contributions. Possible options include:
•Offer payroll deductions. Employers can allow employees to elect payroll deductions that are then funneled into the employee’s chosen 529 college savings plan.
•Match employee contributions. Employers can couple the payroll deduction with matching employee contributions to a 529 plan or by making one-time “starter” contributions when employees sign up for a 529 plan or on special occasions, like the birth of child. Employers can also offer to pay enrollment fees on employees’ behalf. These fees can run from less than $50 to about $100 per employee.
•Provide information. Employers that do not wish to get involved with either payroll deductions or making contributions to these plans can still offer support for employees by offering information about 529 plans and links to providers.
Whatever role they take, Lochner noted that employers that integrate 529 plans into their benefit plan offerings are doing their employees a favor. “Starting late is a key issue for a lot of parents saving for their children’s education. By the time they get it together and figure it out, their kids are already in middle school,” she said. By offering 529 plan enrollment and contributions right alongside sign-ups for retirement and health benefits, even if the employer offers no contributions of its own, employees are likely to find it much easier to take action.
To get started, Lochner urged employers to contact their state 529 plan for support in offering this benefit and to find out what incentives the state 529 plan will offer to employees for enrolling and contributing. “Every state plan out there wants to partner with employers,” she said. “Those plans have staff focused on employer relations who can provide everything from brochures to onsite presentations.”
Joanne Sammer is a New Jersey-based freelance writer.
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