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Converting PTO Funds to Student Loan Relief Is a Timely Benefit

Employees with excess PTO days may be struggling with college debt

A woman wearing a face mask in the office.

What do unused paid-time-off (PTO) days, student loan debt and the coronavirus have in common? An opportunity for employers to provide financial relief to employees who are increasingly putting off vacations due to the COVID-19 pandemic.

Companies have long struggled with the problem of unused PTO. Some have allowed employees to roll over accrued hours year to year, creating financial liabilities when those workers must be paid for those hours when their employment ends. Others snatch away unused PTO days through end-of-year "use it or lose it" policies that limit rolling over PTO to just a week or two, posing employee relations challenges. And a growing number offer "unlimited PTO," which gets unused vacation days off their books entirely but may result in employees taking fewer days off.

Meanwhile, while employers recognize the need to help employees with loan debts, many can't justify additional benefit expenses—especially during an economic downturn.

One option is to let employees convert unused PTO into loan-repayment funds or cash that can be used for other pressing needs.

SHRM Resource Spotlight
Coronavirus and COVID-19

Student Debt Is Top of Mind

Employers are aware of the effects of student loan debt, according to HR consultancy Buck's annual Financial Wellbeing and Voluntary Benefits Survey Report, based on input from 164 employers with 500 or more employees, polled from late 2019 through February 2020. Some key findings:

  • 41 percent of employers—compared to 23 percent in 2017—said that student loan debt was a top motivator for their financial wellness offerings.
  • Student loan repayment contributions were viewed as one of the best solutions for addressing financial stress, ranking just behind financial coaching and supplemental medical plans.

According to Jeff Holdvogt, a partner in the Chicago office of law firm McDermott Will & Emery, more employees, particularly Millennials, "are telling employers that benefits to help pay off student loan debt would go a long way toward either getting them to come to work for an employers or keeping them." At the end of the day, he said, "it's all about attracting and retaining talent."

This number of employers providing direct student loan repayment as a benefit has doubled since 2018 from 4 percent to 8 percent, according to the Society for Human Resource Management's 2019 Employee Benefits survey, with responses from 2,763 SHRM members. But providing debt-repayment can be expensive or raise fairness issues with employees who have repaid their debts on their own, which is why some employers may prefer to let employees swap existing benefits for debt relief.

One such approach is when employers make 401(k) matching contributions into the retirement accounts of employees who are repaying student loans through payroll deferrals, even if those employees are not able to make elective 401(k) contributions. In other words, the 401(k) match is tied to the employee's loan repayments instead of to the employee's 401(k) contributions. Converting unused PTO hours to loan relief is an alternative benefits swap.

"With student debt at an all-time high and COVID-19 deterring millions of Americans from taking time off, allowing employees to tap into their accrued PTO to pay down student loan debt just makes sense," said Adam P. Gordon, co-founder of PTO Genius, a software platform that helps companies encourage use of paid time off. "Even a small payment has the potential to shave literally years off their repayment window, which can pave the way to achieving other financial goals often hindered by college debt," Gordon said.

The process is simple: Employees notify their employers that they want the dollar value of accrued PTO directed to a student loan payment. "The company then helps facilitate that payment, either by sending it directly to the student loan servicer or using a third party," Gordon explained.

Another vendor in this area, PTO Exchange, markets a benefits platform for converting unused vacation time into cash that, the company says, "can be used for things employees value," whether those are student loan payments, 401(k) contributions or day-to-day expenses.

"We are firm believers that [PTO] is an earned wage and individuals should be able to self-direct it for what matters most to them, instead of having to wait for companies to pay out the benefits during transition or termination periods," the company's founder and CEO, Rob Whalen, told GeekWire. "Taking time away from your job may be more stressful if you are living paycheck to paycheck, are overwhelmed with student loan debt, or have health and medical bills. Relieving stress is not just about taking days off."

A Case in Point

Financial services firm Fidelity Investments has been studying the issue of student loan debt and possible employer benefits for several years, said Asha Srikantiah, head of the student debt program at Fidelity. "Student loan debt is having a very, very significant impact on people, majorly affecting life choices and the ability to reach key milestones they had wanted to achieve," such as purchasing a home, she said.

Fidelity offered some relief to employees through monetary contributions toward the payment of their student loans. They soon saw an opportunity to work with other companies to do the same and, in 2017, they started the Student Debt Direct Contribution program.

But as they began to roll the program out, Srikantiah discovered that, for some employers, the idea of adding another benefit liability simply wasn't feasible without taking away from other benefits.

In 2018, her team began talking with Unum, one of Fidelity's clients, about helping employees with student debt while also finding a creative way to fund and keep the program viable—allowing employees to apply the dollar value of unused PTO time to student loan balances. Unum introduced the option in January 2019.

The impact of the Unum program so far is impressive. As of July, the company has paid $528,000 in student debt on behalf of 428 employees.

Important Considerations

While the idea of offering to buy back PTO time from employees holds promise, there are important issues to consider, Holdvogt said. First, consider your workforce—or potential workforce. Is this something that is likely to appeal to them?

Make sure your proposal complies with PTO administration laws in the states where you have employees. Consult with financial and legal advisors to make sure the benefit is implemented in accordance with potential legal requirements or restrictions and to fully understand tax implications, Holdvogt said.

In addition, employers need to strike a balance between offering to buy back PTO time while still ensuring employees are taking time off so they don't become over-stressed and less productive due to emotionally burning out. One way is to limit the amount of PTO time that can be converted into cash for loan relief or other needs.

PTO-conversion programs can send an attractive message to employees and job applicants. "Employers offering these types of programs can get a lot of bang for their buck," he said. "These programs get a lot of good publicity."

Lin Grensing-Pophal is a freelance writer in Chippewa Falls, Wis.

Related SHRM Articles:

The Business Case for Employee Student Loan Repayment Programs, SHRM Online, January 2020

New Benefit Lets Employees Trade PTO for Student Loan Relief, SHRM Online, February 2019

IRS Allows 401(k) Match for Student Loan Repayments, SHRM Online, August 2018


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