Pay student loan or join 401(k)? Help millennials do both
What if there was a way to help your employees repay their student loans and increase your company’s retention rates?
Because student loan debt is so important to younger employees, companies that offer relief in this area will have a big leg up on the competition and will likely be able to bolster dwindling retention rates.
A growing number of employers, including Estée Lauder, Pure Insurance and Carhartt, have added student loan assistance to their benefits packages this year.
Still, only 4% of employers currently offer some form of student loan assistance, according to a SHRM survey. But a student loan benefit is the “hottest employee benefit of 2018,” according to Forbes.
A 401(k) twist on student loan aid
Now, with a new IRS ruling, there’s a way for employees to repay their student loans and share in your company’s 401(k) plan. The IRS approved one company’s plan that allows employees to set aside 2% of their salaries toward student loan repayment.
This IRS ruling only applies to the Illinois-based health company Abbott, but it opens the door for other employers to make the same request.
Here’s how it works: Employees make a student loan payment of at least 2% of their pay and the employer makes a matching contribution equal to 5% of employee pay into their 401(k) plan.
3 ways employers are stepping up
Employers may want to consider applying for their own IRS letter, or take guidance from what’s working for other employers now:
1. Offer to make a monthly student loan payment. Many employers pay a specified monthly amount – usually $50-$100 a month (with a cap of roughly $10,000) – to help pay employees’ loans.
There’s now an emerging group of third-party administrators offering student loan programs, such as Fidelity’s Student Debt Employer Contribution program.
One employer, 3Q Digital, has recently begun offering a $50 per month student loan benefit, and the results so far have exceeded its expectations. “Around 25% of our employees signed up for the benefit and we’ve seen our retention rate increase from 57% to 78%,” said Laura Rodnitzky, 3Q’s VP of people.
2. Provide student debt assistance. Student Loan Genius teams up with companies to offer employees one-on-one advice to help them navigate a myriad of repayment scenarios.
Los Angeles-based VCA Inc. began offering this benefit in 2016 because “debt prohibits [employees] from home ownership and saving for the future,” said Don Cervantes, VCA’s director of benefits. So far, 583 of its 4,000 employees have enrolled.
Other companies that offer this type of assistance program include Tuition.io and Gradifi.
3. Use the benefit to attract top talent. Since 2017, Prudential Financial has given new employees hired through its campus recruiting program up to $5,000 to help pay off student debt, after one year of employment.
Industry experts expect that by 2019, there will be a 24% increase in the number of companies offering student loan assistance as a benefit.
