InvestmentNews Editorials

Financial crises require creative thinking, follow-through

Because after all, advisers are the most informed constituents to weigh in

May 18, 2019 @ 6:00 am

When something is called a crisis, odds are good an easy solution is nowhere in sight. When a couple of crises bump up against each other, forget about it.

Financial advisers, however, can't just throw up their hands when it comes to clients' competing challenges, such as saving for retirement while paying down debt. No matter how many strategies our profession has for smart money management, let's be honest, there are only so many dollars to go around.

This is why solving real crises often requires a tiny spark of creative thinking, followed by action on a massive enough scale to break down and reconfigure the rules we all play by. Just such an innovative idea cropped up in the private sector and has found a champion in Congress.

A wide-ranging retirement bill introduced in the Senate last week includes a provision to make it easier for companies to contribute to retirement accounts for employees who are paying down student debt. Because those workers have loan obligations to meet and may be younger and on the lower end of the income spectrum, they may not have enough left over to contribute to their 401(k) and gain that precious company match.

Abbott Laboratories requested permission from the Internal Revenue Service to make a 5% 401(k) plan match to employees who pay at least 2% of their compensation toward student loan debt, and the IRS affirmed the plan last year in a private letter ruling. This exception was necessary to ensure the company didn't run afoul of "contingent benefit rules" meant to protect workers from certain requirements being tacked on to the receipt of benefits.

The Travelers Companies Inc. recently announced that it is seeking to introduce a similar program to make matching contributions to the 401(k) accounts of employees paying off student loans.

Instead of each and every company figuring this out one by one and requesting their own separate ruling, the new legislation, the Retirement Security and Savings Act of 2019, would effectively provide universal approval for this concept that has been gaining traction. If the bill passes and companies that do create the benefit find it's an excellent tool for recruiting bright young talent, the sky's the limit for nationwide adoption.

The bill, however, sits behind at least two other retirement measures that already have garnered broad bipartisan support: the Retirement Enhancement and Savings Act (RESA) in the Senate and Setting Every Community Up for Retirement Enhancement Act (SECURE) in the House. While many provisions are featured in all three bills or at least two, like increasing the required minimum distribution age, at this point the student loan payment 401(k) match unfortunately resides only in the new measure. There is plenty of room for negotiation on any of these pieces of legislation, though, as they move closer to a vote.

But why stop at student loans? Are there other types of "worthy" debt a top job candidate might be paying down that would make the person consider accepting a job at one company over another because of a linked 401(k) match? What about mountainous medical bills?

The point is that sometimes crises build and new thinking is required to use the resources at hand in the most efficient and beneficial way for all parties.

It's important for advisers to be aware of the scope of these big ideas, especially the ones finding favor in Washington. After all, on occasion Congress makes a policy decision with huge financial repercussions — think of ERISA, the individual retirement account, the Roth and health savings accounts.

Who better than financial advisers to inform their clients of what's at stake? They also are the most informed constituents to weigh in on any personal finance measures working their way around Capitol Hill and ensure those ideas progress in the right direction.

0
Comments

What do you think?

View comments

Upcoming event

Sep 24

Conference

Diversity & Inclusion Awards

Attend an event celebrating diversity and inclusion as well as recognizing those who are leading the financial services profession in this important endeavor. Join InvestmentNews, as we strive to raise awareness, educate and inspire an... Learn more

Most watched

INTV

Young advisers envision a radically different business in five years

Fintech and sustainable investing are two factors being watched closely by some of the 2019 class of InvestmentNews' 40 Under 40.

INTV

Young professionals see lots of opportunity to reinvent the advice experience

Members of the 2019 InvestmentNews class of 40 Under 40 have strategies to overcome the challenges of being young in a mature industry.

Latest news & opinion

Target-date fund design may be wrong for retirees

Researchers suggest the funds don't adequately hedge against sequence-of-returns risk in retirement.

InvestmentNews' 2019 class of 40 Under 40

Our 40 Under 40 project, now in its sixth year, highlights young talent in the financial advice industry. These individuals illustrate the tremendous potential of those coming up in the profession. These stories will surprise, entertain, educate and inspire.

New Jersey fiduciary rule: Pressure leads to public hearing, comment deadline extension

Industry push results in chance to air grievances on July 17 and another month to present objections.

Galvin to propose fiduciary rule for Massachusetts brokers

The secretary of the commonwealth is proposing a fiduciary standard in response to an SEC investment-advice rule he views as too weak.

Summer reading recommendations from financial advisers

Here are some books that will keep you informed and entertained during summer's downtime

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print