Financial crises require creative thinking, follow-through

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.