Though the Sept. 30 moratorium on student loan payments was recently extended to Jan. 31, 2022, there will soon be a reckoning for the estimated 70% of millennials and their families saddled with student loan debt.
Retirement plan advisers can distinguish themselves and put some teeth into sometimes hard-to-define financial wellness programs by helping defined-contribution clients incorporate student loan repayment programs to leverage the company match.
Three years ago, the Abbott Labs IRS private letter ruling allowed that company to use student loan repayments to qualify employees for its generous 401(k) match. Since then, more plan sponsors have adopted a similar approach, and that will get a major boost if the SECURE Act 2.0 includes this type of program, as expected.
“Student loan debt is a multigenerational issue, as parents and even grandparents help repay the loan,” said Laurel Taylor, founder of FutureFuel.io, a student loan fintech enabler. “This debt affects everyone, but especially younger employees, who can be up to 10 years behind in building wealth.”
Taylor has personal experience. She and her mother could not save while they paid off her MIT MBA costs, even though she eventually led a global business unit for Google.
Most student loan providers help with refinancing, and others focus on creating a system to leverage the match. FutureFuel is trying to do both, while deploying a proactive digital experience to spur micro actions, using behavioral finance principles that yield big results.
FutureFuel.io has been focused on workplaces and banks, where most people conduct financial transactions. It recently identified RPAs, starting with GRPAA, which has been on the hunt for fintech partners it can offer to its members.
Plan sponsors are clamoring for solutions to help employees with their financial issues. Student loans and emergency savings programs are two easy, simple and impactful ways that the DC industry can help.
“Content is great, but we are focused on action,” Taylor said. “How do we move money from debt to savings?”
Though record-keeper partnerships would help, with Transamerica the first to sign up, there is no need to integrate FutureFuel.io’s software or get data from the providers to start. FutureFuel.io reaches out to all employees, many of whom are not participating. Providers get paid either on head count or assets, so expect more of them to incorporate student loan programs if the SECURE 2.0 includes applicable provisions.
RPAs can work with even smaller plan sponsors and can white-label FutureFuel.io’s solution. In fact, UBS, which led the latest round of financing, plans to offer the product to its 10,000 corporate clients and 2 million DC participants.
Providers and advisers realize the untapped potential to work with the participants in their DC plans and cross sell other financial services. And though most millennials might not qualify to be wealth management clients or be able to afford traditional financial planning, helping them with their student loan debt is a great way to begin the relationship.
Because if you wait until they become more attractive clients, it may be too late.
Fred Barstein is founder and CEO of The Retirement Advisor University and The Plan Sponsor University. He is also a contributing editor for InvestmentNews’ RPA Convergence newsletter.
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