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(Bloomberg) — For James Bryant, it’s been difficult balancing student loans with life and saving for retirement.
His employer, Verizon Communications Inc. offers a 401(k) match, worth up to 6% of his salary. But between his loans, living expenses and the money he sends his parents, the 37 year old hasn’t always saved enough to get the full match since he started in 2016.
“There have been times I didn’t take full advantage of the match,” said Bryant, a senior call-center manager, who graduated from Hartwick College in 2008 with about $75,000 in debt. “My parents probably didn’t save the way they should’ve throughout their lives, and I worry I’m kind of repeating that same cycle.”
Employees often have to choose between repaying student debt and saving for retirement. But with employers like Verizon now able to apply student loan payments toward 401(k) matches with the Secure 2.0 Act, Bryant expects his savings rate should improve, especially if he can pay down his debt more aggressively.
Borrowers’ hopes for widespread student-debt relief were largely squashed when the Supreme Court struck down President Joe Biden’s one-time forgiveness program, meant to tackle the $1.6 trillion borrowers have in federal student loans. That debt has long been a burden on some 40 million Americans, many of whom save less for retirement than their debt-free peers. And while companies have long offered tuition-reimbursement programs for those who decide to go back to school, some are also acknowledging the debt employees have already accrued, and the ways it’s impacting their ability to save.
Employee demand for student-loan support has been growing and can give employers a leg up in recruitment, said Tony Guadagni, a director of human resources at Gartner Inc., an HR advisory group. But, the benefit is not without its critics.
Verizon is among just 100 companies now offering a match through retirement plan provider Fidelity Investments, which rolled out a program to handle the benefit Jan. 1 to its roughly 30,000 corporate clients. Dow Inc., News Corp., and Liberty Mutual Insurance Co. have also signed on.
But overall, about 64% of companies don’t plan to roll out an expanded 401(k) match, citing costs as a major reason, according to a survey by the Plan Sponsor Council of America. Furthermore, a paper by the National Bureau of Economic Research, released in May, projected that while such a benefit should help workers pay off their student loans quicker, it’s likely to have a minimal effect on retirement savings. Even the more generous 401(k) match programs — like Verizon’s dollar for dollar match — are far from the standard 10% to 20% recommendation for how much to put aside for retirement.
Read more: Many Younger Americans Don’t See a Path to Retirement
Still, every little bit can help. For Christi Houchins, a vice president and complaints RCA manager at Synchrony Financial, the program came just in time.
Last year she decided to put her 401(k) contributions on pause so she and her husband could tackle their combined $180,000 in student-loan debt after privately refinancing with a lower interest rate. But when Synchrony rolled out its expanded 401(k) match at the start of the year, their efforts to knock back their balance to $139,000 — and ultimately, pay it off altogether — were accelerated.
“It felt like divine intervention when I saw that email,” she said. “I felt like, ‘I’m going to be pausing for so many years towards my retirement and not being able to get the company match. What am I missing out on?’” The benefit, she says, “took that decision away, and I am not going to miss out.”
Read more: Americans’ Financial Insecurity Is at a Record, Survey Says
Meanwhile, many of the companies planning to offer the benefit know the majority of their workers won’t sign up, simply because they don’t need it. Some employees don’t have student loans, while others may decide they have the funds to contribute to their 401(k)s and pay off their loans.
Abbott Laboratories, which began offering an in-house student-loan 401(k) match program in 2018, said less than 5% of its workforce was enrolled in the benefit, called Freedom 2 Save, whereas roughly 92% of employees use the traditional 401(k) plan.
Mary Moreland, executive vice president of human resources, said that’s not a sign of a misguided program, however. Those using it are 19% more likely to stay with the company overall.
“Not everyone with a student loan will need to participate in a program like Freedom2Save, and that’s OK,” Moreland said.
To contact the author of this story:
Ella Ceron in New York at [email protected]
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