Historically, the retirement plan industry has focused on a single goal: successful retirement plan outcomes. This statement probably doesn’t seem surprising or concerning. Recently though, the industry has started to acknowledge that there may be more to life than just a successful retirement. For many participants, retirement savings can seem like a secondary luxury when compared to the current financial stresses that they face.
Stepping into this challenge has been the industry’s focus on “financial wellness.” I cannot meet with a recordkeeping vendor without hearing their pitch for the new financial wellness tool they are creating or just launched. For most recordkeepers, financial wellness tools are largely some form of financial education packaged with the “wellness” buzzwords. Unfortunately, while education may be helpful to some employees, it doesn’t tend to move the needle for employees who are struggling financially. For plan sponsors that want to provide more direct support, there are limited options because of ERISA’s focus on “retirement” savings has created a silo with an emphasis on the singular goal of retirement.
A new bill introduced in the Senate would help improve retirement outcomes for employees while also easing some of the financial stress that they may feel. The new bill would allow plan sponsors to make matching contributions on student loan payments as if they were employee deductions into a plan. For many younger employees, the competing demand to repay student loan debt is a deterrent to saving for retirement. The employee misses out on the opportunity to save their own money for retirement, but is also negatively impacted because their lack of retirement savings causes them to miss out on the matching contributions that their employer intended to pay them. The new bill aims to eliminate the double whammy of missed employer matching contributions when choosing to repay student loans over saving for retirement.
This new bill comes on the heels of a recent IRS private letter ruling that allowed a plan sponsor to make matching contributions dependent on employees making student loan repayments. The private letter rule was considered a good first step, but without specific legislation authorizing this type of arrangement, it is likely to be limited to only those plan sponsors large enough to want to incur the expense of going through the process of requesting a private letter ruling.
While there is a significant gap between introducing a bill and actual legislation, there is hope that the current interest in student loans and financial wellness may lead to new options for plan sponsors that want to help their employees achieve greater financial stability and successful retirement outcomes.
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