One company’s innovative idea to help its employees cope with the problem of high student loan debt has received the go-ahead from the IRS in a private-ruling letter that federal officials recently made public.
The IRS is allowing the employer to amend its 401(k) plan to allow the company to contribute to the retirement accounts of employees who make student loan payments equal to at least 2 percent of their salaries. The employees do not need to be putting any money away for their retirement to qualify for this benefit. What’s more, the employer’s contributions to the 401(k) will not be subject to tax deductions, as that money would have otherwise been if it had been given directly to employees for student loan repayments.
According to HRDive, research shows young employees are saddled with student debt and have little or nothing saved for retirement. An NJBIA report released earlier in 2018 also noted the problem of high student debt. NJBIA’s report, “The Education Equation: Strategies for Retaining and Attracting New Jersey’s Future Workforce,” noted 61 percent of students graduating in 2016 from New Jersey institutions had an average $27,878 in student loan debt.
“Direct employer involvement in student loan debt repayment is increasing, too, as more employees begin to demand it,” writes Katie Clarey, in HRDive. More than three quarters of workers with student loans say they want their employers to offer a repayment benefit and U.S. employees haven’t been shy about the fact that they’re willing to leave a job for another opportunity boasting better benefits.”
The IRS private-ruling letter applies only to the undisclosed company that requested it. HRDive speculated the company was the healthcare giant Abbott, which announced in June that it would begin offering this retirement-student loan hybrid benefit, called the Freedom 2 Save Program for Employees to Address Student Debt.