Access Exclusive, Trusted HR News & Resources >>> New Professional Members Save $20 Today
We asked HR professionals to tell us about their time in HR. Here are their stories.
Is your employee handbook keeping up with the changing world of work? With SHRM's Employee Handbook Builder get peace of mind that your handbook is up-to-date.
Set yourself up for success with virtual SHRM-CP/SHRM-SCP Certification Prep Seminars.
#SHRM18 will expand your perspective – on your organization, on your career, and on the way you approach HR. Join us in Chicago June 17-20, 2018
As employees repay college loans, employers make 401(k) contributions for them
The class of 2015 graduated with
$35,051 in student debt on average, and the need for younger workers to repay their student loans is
taking a toll on their ability to contribute to 401(k) or similar retirement plans. That’s significant, because saving early in adulthood increases the growth and
compounding of investments over time, which dramatically improves the chances that today’s recent graduates will be prepared for retirement decades from now.
Trying to make up for lost savings in later years can prove difficult, requiring a much larger percentage of earnings to be contributed at a time when workers may be supporting families or caring for elderly parents.
One employer response to the student-debt problem that has received a good bit of
media attention is offering a
student loan repayment benefit. But there’s a new twist on that concept, and its backers say it’s a more direct pathway to increasing younger workers’ retirement savings. This week Prudential Retirement, a provider of 401(k) plan administration services, announced it has partnered with Student Loan Genius, a firm that facilitates loan repayment options, to offer the startup’s
new 401(k) contribution feature. The idea is to help employees build up their retirement savings while they pay off their student loans.
“As student loan debt grows, workers are having to choose between paying off their student loans or prioritizing other important financial goals,” said Jamie McInnes, senior vice president and head of total retirement solutions for Prudential Retirement. “Our research tells us many workers will choose to pay down debt rather than save for retirement.”
401(k) Dollars as Loans Repaid
The benefit that McInnes sees as being part of the solution works this way: Employees who make student loan payments receive a pretax contribution to their retirement account from their employer based on that student loan payment, whether or not they contribute to their 401(k) plan or receive matching contributions. The employer contribution—paid as a flat dollar amount, as a percentage of the student loan payment or as a percentage of the employee’s compensation—can be offered annually, monthly or for each payroll period. For example, an employer could offer a $75 monthly contribution to an employee who pays a $400 loan repayment each month.
It’s too soon to predict whether this approach will catch on as an alternative to employers directly helping to repay student loans, but it highlights growing concerns over the debt burden—and savings challanges—confronting the Millennial workers that companies want to attract and retain.
“An employer that is proactively helping [employees] make student loan payment a focus of their financial planning is definitely one that will appeal to Millennials,” commented Emily Miethner, CEO of FindSpark, a career-networking site for young professionals.
Stephen Miller, CEBS, is an online editor/manager for SHRM.
Follow me on Twitter.
Related SHRM Articles
You have successfully saved this page as a bookmark.
Please confirm that you want to proceed with deleting bookmark.
You have successfully removed bookmark.
Please log in as a SHRM member before saving bookmarks.
Your session has expired. Please log in again before saving bookmarks.
Please purchase a SHRM membership before saving bookmarks.
An error has occurred
Recommended for you
HR Education in a City Near You
SHRM’s HR Vendor Directory contains over 3,200 companies