InvestmentNews Editorials

Many young staffers have benefits needs beyond a simple 401(k)

IRS ruling affirms one employer's approach to chipping away at employees' mountain of student loan debt

Sep 1, 2018 @ 6:00 am

Advisers often bemoan the shortage of talent that's preventing a natural growth in their business — if only they could find the right person, and keep them. The trickle of graduates coming out of financial planning schools is one factor, but many industries are facing challenges in hiring the right people at the moment given that the unemployment rate is below 4%.

So what are advisers, or their small-business clients, to do?

One strategy for attracting talent is to offer best-in-class benefits. And what many young people entering the professional workforce need more than anything these days is help chipping away at their mountain of student loan debt.

An "easy" way to go about paying such benefits is coupling them with a 401(k) match. But employers have run up against hurdles to making any benefit contingent upon participation in a 401(k).

You won't often hear this but ... IRS to the rescue!

In a private letter ruling in August, the Internal Revenue Service affirmed one employer's approach: Allow employees to choose whether to receive a 5% contribution from the employer as a 401(k) match or a student loan repayment. Employees would receive the money regardless of whether they contribute to the retirement plan.

In reporting on the story, InvestmentNews reporter Greg Iacurci spoke with a couple of retirement plan advisers who suggested this could be the next evolution in benefits, and their fellow plan advisers ought to pay attention. What better way to stand out from the pack than to help a firm be able to attract and support the very employees they are clamoring for?

It's good for young professionals joining these firms too, obviously. Many of these folks, including the so-called HENRYs (high-earner, not rich yet), are or will become prime adviser prospects. The sooner they pay down that debt the sooner they'll be investing for their future — and needing advice.

But as Mr. Iacurci reports, a private letter ruling from the IRS doesn't amount to concrete guidance — it only applies to the specific plan that requested the ruling in the first place. Advisers will need broader, official guidance, regulations or legislation on allowances to begin implementing these options with clients on a large scale.

What can't be underestimated is the impact student debt is having on the next generation and their ability to begin planning their financial lives beyond getting this particular monkey off their back. That monkey now weighs in at over $1.5 trillion in the U.S. alone as of the first quarter, according to the Federal Reserve. Various studies put default rates on these loans between 28-40% — a black mark in the early stages of a person's financial life.

Yet employers' reaction to student loan repayment programs has been tepid at best. The 2018 Employee Benefits survey by the Society for Human Resource Management shows that only 4% of companies offer student loan repayment programs. Is this because the benefit is too expensive? What if it could replace what a company is already willing to match in a 401(k)?

That's where advisers come in. Solutions to the great financial crises of our day require expertise as well as imagination. The more of it you have, the more valuable you will be to small-business clients. It may even help you improve your own gloomy staffing situation, should you be among the large population of advisers on the hunt for young talent, and willing to provide the benefits young professionals need most.

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