Posted on: January 11, 2023
Approximately 45 million Americans owe nearly $1.76 trillion in student loan debt.1 The latest available data also shows that 3.7 million parent borrowers owe an average of $29,324 in federal parent PLUS loans.1 The average monthly student loan payment was $289 before the federal student loan payment pause was implemented in 2020.2 These statistics all paint a picture of Americans in various life stages who juggle student loan repayment while trying to plan for retirement.
In fact, one-quarter of employed Americans have no retirement savings, according to research from the Federal Reserve. A 2018 study by the Center for Retirement Research at Boston College found graduates with student loans accumulate 50% less retirement wealth by age 30. The stress of juggling completing financial priorities takes a toll on physical, mental, and emotional health, as well as employee productivity. Employers who assist employees in saving for retirement can also benefit.
The Setting Every Community Up for Retirement Enhancement (SECURE) Act 2.0 strengthens retirement plans while making it easier for more Americans to participate in them and for employers to administer them. Most importantly, SECURE Act 2.0 allows employees to focus on paying down student debt while they save for retirement.
More employees – even those with student loan debt – can save for retirement.
These provisions of the SECURE Act 2.0 boost overall retirement plan participation and make it easier for particular groups that have struggled to save for retirement to do so.
- Automatic enrollment is required for certain employers with 401(k) or 403(b) plans. (Employees can choose to opt out.)
- Expanded 401(k) eligibility. Part-time employees still need to log 500 hours to join their employer’s 401(k) plan, but can log them over just two consecutive years (instead of three consecutive years as defined in the 2019 SECURE Act).
- More employees qualify for the Saver’s Credit, which offers extra tax deductions for low- to medium-income households when saving for retirement.
- Bigger catch-up contributions for employees ages 62-64.
- Employers can match contributions to 401(k) plans based on employees’ student loan payments (up to a certain percent of the employee’s salary), providing relief to those with student loan debt.
How does retirement and student loan debt relief from SECURE Act 2.0 work?
With SECURE Act 2.0, employers can amend their plans to recognize an employee’s student loan payments. Employees can earn employer matching contributions to their retirement by making eligible student loan payments. The qualifying student loan payment is treated as an elective deferral or an elective contribution. This allows them to start taking advantage of their employer 401(k) or 403(b) match earlier, with all the tax benefits and long term savings.
BenefitEd works flexibly with employers and retirement plan providers on SECURE Act 2.0, allowing employers to implement this unique retirement tool. BenefitEd will track or certify the employee’s qualified loan payments.
You can make a difference with your benefits.
Providing your employees with benefits that help them save for retirement – and that recognize challenges they face with repaying student loan debt, affording education expenses, and saving for future education needs – can increase employee productivity, satisfaction, and retention. It can also help you compete for employees in a competitive market.