The pharmaceutical and health care products company Abbott Laboratories rolled out a new benefit last week that is designed to encourage employees to pay down their student debt by helping them save for retirement at the same time. The New York Times’ Ann Carrns noted Abbott’s new benefit in an item discussing the broader trend of student loan assistance benefits:
Under the new Freedom 2 Save program, employees who contribute at least 2 percent of their pay toward their student loans — as verified periodically by an outside contractor — will receive a 5 percent match in their 401(k) retirement savings plan. Abbott offers the same match to employees who contribute at least 2 percent of their pay to their 401(k). So, for instance, if an employee is making $70,000 and uses at least $1,400 to pay down student debt, Abbott will contribute $3,500 to the employee’s 401(k) plan, a spokeswoman said.
That benefit can add up over time. Abbott offered this illustration of the program’s impact: [An employee] who joins Abbott with a salary of $70,000 could accumulate $54,000 in their 401(k) account over 10 years, assuming a 6 percent average annual return and yearly merit increases of 3 percent, without any retirement contribution of their own.
Assistance with student loan repayment remains an uncommon benefit among US employers: Our research at CEB, now Gartner, shows that among organizations that offer education benefits, 90 percent provide tuition assistance, but only 7 percent provide student loan reimbursement. SHRM’s 2018 Employee Benefits Survey found that just 4 percent of all organizations offer student debt benefits, compared to 51 percent who offered assistance with undergraduate education. Eleven percent offer a payroll deduction for contributions to tax-advantaged 529 college savings plans, but fewer than 2 percent offer matching contributions to those plans.
What employers like Abbott are realizing, however, is that the large number of American adults struggling with student debt place a lot of value on any help they get from their employers in paying them off. Our latest benefits perceptions research finds that 61 percent of employees see education benefits as an important factor in making a decision about a job offer, while student loan assistance can save employees thousands of dollars in interest payments and help them get out of debt years earlier than they otherwise would.
Unfortunately, Congress has not yet chosen to make student loan benefits tax-advantaged like 401(k) plans or 529 plans, so they are treated as regular wages for tax purposes. The absence of this preferential tax treatment has partly fueled criticism of these benefits, with critics arguing that this assistance isn’t really any more valuable than cash compensation. Abbott’s benefit gets around this policy glitch by rewarding employees’ own student loan payments with matching 401(k) contributions, which are not taxable to the employee at the time the employer makes them.
One of the worrying consequences of the rising cost of college education in the US and Americans’ massive student debt burden is that many early- and mid-career professionals are too busy paying off their loans to save for retirement, while many older workers find themselves unable to retire either because they are still stuck with outstanding student debt of their own, or because they have drained their retirement savings to send their children to college. By addressing both the student debt crisis and the retirement savings crisis, Abbott’s new benefit could make a big difference in its employees’ financial futures.