“student Loan Debt And Retirement Planning: Balancing Priorities” – Last month, the IRS opened the door to the “next big thing” in 401(k) plans when it approved Abbott Laboratories’ request to match employee student loan payments to a contribution to their 401(k) account. Many believe this IRS approval heralds the biggest improvement to the 401(k) plan since the addition of Roth 401(k) accounts in 2006.
From an employer’s perspective, offering employees an incentive to pay off student debt by contributing to a 401(k) account is a neutral way to promote financial wellness. Abbott undoubtedly sees this student loan benefit program as a tool to attract and retain talented young workers.
“student Loan Debt And Retirement Planning: Balancing Priorities”
For the employee, it’s an employee benefit program that encourages them to responsibly tackle their student loan debt by putting money into their retirement account every time they make a payment.
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Student loan debt is a significant problem for all workers getting to work. According to a recent survey by the Employee Benefit Research Institute, from 1992 to 2016, the average student loan balance increased from $11,571 to $34,293.
Student loan debt has a major impact on young workers’ ability to save for retirement. The EBRI survey shows that while workers with student loans are more likely to have access to a 401(k) plan, their plan balances are on average less than half of those without student loan debt.
A 2017 OneAmerica survey of more than 12,000 OneAmerica retirement plan participants found that four in 10 respondents have student loan debt, 85 percent of which says it affects their ability to save for retirement.
IRS approval allows Abbott Laboratories to contribute pre-tax dollars to an employee’s 401(k) account when that employee makes an after-tax payment on their student loans. These employer 401(k) contributions are available only to employees who are eligible to participate in the company’s 401(k) plan and are subject to the same matching contribution schedule as regular 401(k) plans.
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Abbott Laboratories is located 15 miles south of the Wisconsin state border in northern Illinois. The company presented the plan in the summer.
“Abbott competes for the best and brightest minds with degrees ranging from science and engineering to sales and business development,” the company said in a statement announcing the plan.
Abbott hired more than 1,000 people under the age of 35 in the U.S. last year, “most of whom had college degrees. In fact, more than a third of those aged 31-35 had a master’s degree and another third had a doctorate degree,” according to the statement.
To be clear, this IRS approval, known as a private letter ruling, can only be relied upon by Abbott. This program may not be suitable, or feasible, for all employers. Given that Congress has long recognized that working Americans must deal with mounting student loan debt and save for retirement, it is hoped that this ruling will act as a catalyst for Congress to pass legislation that will encourage widespread adoption of student loan repayment incentives. the programs
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In the meantime, it’s not too early to start asking your employer if they know such a program exists and if they’ve considered following in Abbott’s footsteps to help their growing millennial population.
In the world of employee benefits, the old adage “the squeaky wheel gets the grease” holds true.
Michael J. Francis is President and Chief Investment Officer of Francis Investment Counsel LLC, a registered investment advisor based in Brookfield. Mike Francis can be reached at michael.francis@francisinvco.com. The information contained herein is provided for informational purposes only. Past performance does not guarantee future results. Francis Investment Counsel does not provide personal tax or legal advice.
We followed four Wisconsin dairy farms for a year as they struggled with the industry-wide crisis, and one failed to make it.
Student Debt Is Transforming The American Family
In this weekly newsletter, Sarah Hauer will serve as your city guide and share stories about Milwaukee, its people and what’s happening around town. According to the College Board, the cost of a four-year education has risen more than 200% (after inflation). ) from 1988 to 2018. This has placed a tremendous burden on graduates, with national student loan debt at a staggering $1.6 trillion. Surprisingly, while graduates between the ages of 25 and 34 have the most access to student loans, it’s those between the ages of 35 and 49 who have the most debt, and this isn’t just a problem for those just entering the workforce.
By offering comprehensive financial wellness programming that addresses this issue or a more formal and structured student debt repayment benefit, there are strong reasons why plan sponsors should consider taking action on the negative effects of student debt on employees.
Large loan balances can delay the achievement of important financial milestones, such as home ownership (23%), emergency savings (34%) and retirement savings (29%), according to a 2019 Bankrate survey. And these delays can have serious downstream effects in other areas of financial well-being. When planning for retirement, student loan payments can keep workers on the sidelines, missing out on valuable early years of compounding benefits.
Student loans are a significant contributor to employee stress, which can lead to mental and physical health problems, as well as absenteeism. According to Kiplinger’s 2020 Retirement Survey sponsored by Personal Capital, respondents ages 40 to 74 reported a number of negative health effects from financial stress, including increased anxiety (35.9%), loss of sleep (27.4%), weight or weight loss (21.6%). ), depressive thoughts (20.1%) and chronic diseases (5.5%).
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Student loan debt help can help solve many of these problems. But the benefits aren’t limited to employees; they can also extend to the organizations that employ them. Offering a student loan repayment benefit can help employers stand out, attract top talent and boost their bottom line.
Set yourself apart. As a relatively rare benefit, student loan assistance can help employers differentiate themselves in a tough job market. And it could especially help companies struggling to recruit in sectors hit hard by the pandemic, such as healthcare, leisure, hospitality and travel.
Increase productivity. It’s hard to stay engaged and focused at work when you’re struggling to manage student debt. So, organizations that can help their employees successfully navigate this stressful situation can see improved employee productivity and overall job satisfaction, and the many benefits that come with it.
Protect your bottom line. Large student loan obligations can crowd out retirement plan contributions and hinder workers’ retirement readiness. And that can lead to delayed retirement, which can increase health care costs for sponsors and result in higher billings due to “promotional lock-in.”
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Attract the right candidates. Student loan repayment benefits offer significant advantages for specific subsets of employers. For example, workers with a high percentage of recent grads, older millennials, Gen Xers, and post-secondary workers (eg, tech, financial services firms) may want to prioritize offering student loan relief.
While the legislative fate of SECURE 2.0 and RISE may expand the range of options for sponsors, employers should consider focusing on this issue in the short term nonetheless. Student loans are about to become a bigger problem for workers as the student loan repayment moratorium ends on May 1, 2022.
This material has been created to provide accurate and reliable information on the topics covered, but should not be taken as a complete analysis of these topics. It is not intended to provide specific legal, fiscal or other professional advice. Depending on your individual situation, the services of an appropriate professional should be sought. The presented material was created by RPAG. Securities, investment advisory and financial planning services are provided through qualified registered representatives of MML Investors Services, LLC. SIPC Member (
). Supervisory Office: 16 Campus Blvd, Newtown Square, PA 19073. Cadence Financial Management, LLC is not a subsidiary or affiliate of MML Investors Services, LLC or its affiliated companies. ACR# 4668707 04/22 Written by Heidi Rivera Written by Heidi Rivera Arrow Right Writer, Personal Loans Heidi Rivera is a personal finance writer and reporter. His areas of expertise include personal loans, student loans and debt consolidation, in addition to data collection and analysis. Connect with Heidi Rivera on Twitter Twitter Connect with Heidi Rivera on LinkedIn Linkedin Contact Heidi Rivera by Email Email Heidi Rivera
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