Retirement Savings Help for Student Loan Borrowers
It’s no secret that young Americans are managing an unprecedented amount of student loan debt. According to the Institute for College Access and Success, 45 million borrowers owe nearly $1.6 trillion in student loan debt, a 2 percent increase over last year. What is more concerning, however, is that this debt greatly impacts important financial decisions that can have long-term repercussions.
This debt can lead to delaying home purchases, starting a family or saving for retirement. In fact, when looking at millennial households, 46 percent have no dedicated retirement savings. Those with retirement savings have a median amount saved of only $19,000. Additionally, because of rising life expectancy, millennials may face a longer retirement, rising healthcare costs and the risk of outliving their savings.
This barrier to retirement savings has forced both the private sector and lawmakers to seek solutions to address this issue. One approach would allow a “matching” contribution to an employee’s retirement account in the amount of their student loan debt payment. Originally a stand-alone bill by Senator Ron Wyden (D-Ore.), the concept is included in both the Retirement Security and Savings Act (RSSA) of 2019 in the Senate as well as in the Securing a Strong Retirement Act (SRRA) of 2020, recently introduced in the House. The legislation would clarify that the employers’ contributions would be permitted under The Employee Retirement Income Security Act of 1974 (ERISA).
This concept, and the potential impact it can have for savers, has gained traction among employers. One of the first companies to implement it was Abbott Laboratories. Wanting to ensure that they didn’t run afoul of ERISA compliance, they sought and received a Private Letter Ruling (PLR) from the U.S. Department of Labor. While the PLR allowed Abbott to proceed, it’s not the law of the land. A federal approach, like RSSA or SRRA, would enable more companies to help their employees this way.
Widely supported by both Republicans and Democrats, the pending legislation will give more employers the peace of mind and encouragement should they voluntarily want to offer this savings tool to their workforce.