Pairing 401(k) and student loan benefits gains more traction

Travelers is implementing a program next year, which follows a similar move by Abbott Laboratories

Mar 8, 2019 @ 4:27 pm

By Greg Iacurci

An increasing number of employers are adopting programs that pair 401(k) savings with student loan repayments, as the nation's cascading college debt has some workers deciding between paying off loans or building a retirement nest egg.

The Travelers Companies Inc. recently announced it will implement a program next year to help address the challenge. The firm, through its Paying It Forward Savings Program, will make a matching contribution to the 401(k) accounts of employees paying down student debt.

The property casualty insurer, which has 30,000 employees, will match what the employee is paying off in loans, up to 5% of their salary or $6,500 annually, and put that into a 401(k) account for the employee. It will make the contributions even if an employee isn't contributing to the company 401(k) plan.

Abbott Laboratories, a health-care company, recently instituted a similar program. The firm requested, and received, a private letter ruling from the Internal Revenue Service blessing the employer's approach. Abbott makes a 401(k) match of 5% to employees that pay at least 2% of their compensation toward student loans.

Both firms have huge 401(k) plans: Abbott's has roughly $8 billion and 32,000 participants, and Travelers' has $6.4 billion and 38,500 participants, according to BrightScope Inc.

John Lowell, partner at October Three Consulting, said there's a lot of interest among employers around student debt repayment.

"I expect a reasonable number will end up adopting programs like this," Mr. Lowell said.

Student loan debt in the U.S. has more than doubled in the last decade to $1.5 trillion. Over half of young adults who went to college took on debt for their education, according to the Federal Reserve.

Some vendors such as Fidelity Investments, SoFi and Student Loan Genius have debuted products that allow employers to help employees pay down student debt, but they aren't tied to company 401(k) plans.

Congress also has introduced bills that would make it easier for employers to pair student loans with retirement savings by clarifying certain compliance rules, or provide favorable tax treatment to employers contributing money directly toward employees' student debt.

"Loan repayments are a major blockade to people being able to put enough money in their 401(k) plans," said Michael Montgomery, managing principal of Montgomery Retirement Plan Advisors.

Some employers have been wary of pairing student loans and retirement savings due to "contingent benefit rules," which limit the ability of employers to link certain types of workplace benefits together. Abbott Laboratories' private letter ruling states that its program does not violate these rules; however, other companies can't rely on this ruling as a defense.

Employers also are concerned such programs may adversely affect their non-discrimination testing, Mr. Lowell said. Or, Mr. Montgomery said others are concerned employees may get complacent with their retirement savings — if they can take advantage of a 401(k) match without contributing to the retirement plan, they may not see a reason to do so themselves.


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