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Parents concerned about saddling children with student-loan debts
The percentage of U.S. employees seeking help with financial concerns who said saving for their children’s college tuition was a top priority has increased significantly, reaching 24 percent in the second quarter of 2013.
Twenty-seven percent of employees with minor children are contributing to a Section 529 plan or similar college savings vehicle, an increase from 16 percent a year earlier, according to a report by Financial Finesse, a provider of financial-education benefits. The firm’s latest quarterly
Trends in Employee Financial Issues report was compiled by tracking questions sent to its financial counselors.
The rise in interest in college-tuition planning may have been influenced by news of increasing rates for federal Stafford loans, which help students pay for undergraduate and graduate education, according to the report. “Still, we believe there are a multitude of other factors causing employees to focus more on this issue and that employees will continue to make it a priority in the future out of necessity,” the report notes. Among these factors are:
Interest in College PlanningPercentage of employees seeking financial counseling who agreed with the following statements:
I know how much I need to save for college costs, and I am on track to meet that need.
I currently contribute to a 529, Coverdell or other tax-advantaged savings account.
I understand the financial aid options that may be available.
Source: Financial Finesse
“While the increase in the percentage of employees with minor children contributing to a college savings account is impressive, the numbers are still disturbingly low,” Liz Davidson, CEO and founder of Financial Finesse, told
SHRM Online. “Nearly three-quarters of parents with minor children report that they have not started saving in a 529 plan or similar vehicle, and nearly eight in 10 are in jeopardy of not saving enough to meet their needs.”
Employer Help on Funding 529 Plans?
As college costs and student debt soar, offering to help parents contribute to a 529 plan can help a company attract and retain competitive talent,
Wall Street Journal. Still, this perk isn't seen as likely to be common.
Some financial advisers are trying to persuade companies to offer 529 payroll deductions and matching contributions to employees, but most employers have been resistant to the idea, citing the difficulties in harmonizing tax and other issues, the
For instance, a matching contribution for 529 plans may sound similar to an employer match to 401(k) contributions, but the tax implications are very different. For matches in a 401(k) plan, the employer contribution isn't taxed as current income for the employee. However, for 529 plans, a match counts as income and is taxed on federal and sometimes state returns.
Many states, for example, offer tax benefits for residents who use the home-state 529 plan, which complicates matters for companies with workers in multiple states.
“At a time when student-loan debt is at an all-time high, tuition increases significantly outpace inflation, and college graduates face a still-uncertain job market with flat wages and more modest company benefits, parents are not nearly as equipped as they should be to manage these challenges,” Davidson added.
Companies can help reduce employees’ stress and the resulting drain on their productivity and well-being by giving workers access to college savings vehicles and financial planning advice, Davidson suggested.
Saving for College vs. Retirement
According to research by Strategic Insight (SI), a mutual fund industry consultancy, 529 plan assets were estimated at $108.5 billion as of the first quarter of 2013, up 14 percent from the first quarter of 2012.
The firm's analysis is not publically accessible, but the August 2013 issue of
PlanSponsor magazine reports that "these all-time-high numbers indicate that participants may be diverting investments from their retirement plans into 529 plans," and that, indeed, SI's research found "plan participants have been borrowing from their retirement products to fund college costs," impacting their ability to save adequately for retirement.
is an online editor/manager for SHRM.
Related External Articles:
Related SHRM Articles:
Strengthen Employee Loyalty with Corporate 529 Plans,
SHRM Online Benefits, February 2012
Rising College Costs Heighten Employees’ Financial Stress,
SHRM Online Benefits, September 2011
Related SHRM Video:
Financial Education. Educating employees on managing their finances can improve their productivity and retirement prospects, says Financial Finesse's Linda Robertson.
SHRM Online Retirement Plans Resource Page
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