Helping an employee reduce their student loan debt and build retirement savings at the same time is the goal of new but familiar legislation introduced in the House of Representatives recently.
Congressman Danny K. Davis (D-IL) along with Rep. Darin LaHood (R-IL) introduced the Retirement Parity for Student Loans Act of 2020, which would permit 401k, 403b, SIMPLE and governmental 457b retirement plans to make matching contributions to workers as if their student loan payments were salary reduction contributions.
“Student loan debt has reached the $1.5 trillion figure. Americans carry more student loan debt than auto loans and credit cards. In addition, student loan debt disproportionately affects those entering the workforce and young professionals. Many employees cannot afford to pay student loan debt and contribute to a 401k or retirement plan,” Davis said. “This approach provides additional resources to the employees to build their retirement savings while reducing their student loan debt.”
Entry level and low salary employees face financial obstacles to significantly reducing student loan debt and the absence of disposable income reduces the likelihood of adequate investment into retirement plans. This bipartisan bill aims to help workers who cannot afford to both save for retirement and pay off their student loan debt.
“Individuals who are working hard to pay off their student loans shouldn’t lose out on opportunities to put away money for retirement,” LaHood said. “This legislation will allow workers to continue to make student loan payments while receiving employer matching contributions into their retirement plan.”
The proposed legislation drew praise from Fidelity Investments, which said in a statement it supports policies that help workers repay student debt while saving for retirement. “We are pleased that policymakers are advancing employer-sponsored student debt assistance benefits and appreciate that the bill allows workers to save for retirement while repaying their student debt,” said the statement, included in Davis’ official release about the bill.
The Marketplace Lending Association Student Loan Refinancing and Repayment Benefit Coalition also expressed support. “Tackling our nation’s student debt challenge will require creative thinking and a strong commitment from American employers to help share the costs of developing an educated workforce. We applaud Rep. Davis and other supporters for being champions for financial health and wellness,” said Nat Hoopes, Executive Director of the MLA coalition. “This bill will ensure that employees of all ages that have education loans are able to take advantage of federal policies that support retirement savings.”
The Retirement Parity for Student Loans Act of 2020 has also been endorsed by the American Benefits Council, Commonbond, Empower, ERISA Industry Committee, FutureFuel.io, Justworks, Inc., NAPEO (National Association of Professional Employer Organizations), SoFi and Tuition.io, and the American Institute of Architects.
Bill has Senate doppelganger
Sen. Ron Wyden (D-OR), Senate Finance Committee Ranking Member, has introduced similar legislation in the Senate, most recently in May 2019.
The Senate version of the Retirement Parity for Student Loans Act would also amend the Internal Revenue Code of 1986 to permit treatment of student loan payments as elective deferrals for purposes of employer matching contributions, among other purposes. Under current law, employers may only make “matching” contributions to a 401k if employees are also making contributions.
The benefit would apply only to repayments of student loan debt that was incurred by a worker for higher education expenses. A worker must certify the amount of student loan repayments that have been made during a plan year in order to receive the benefit, according to the bill summary.
The rate of matching for student loans and for salary reduction contributions must be the same, the summary noted.
According to the Employee Benefit Research Institute, households headed by a person age 35 or younger with a college degree and no student loan debt report median defined contribution account balances of $20,000—compared to $13,000 for similar families that have student loan debt.
The Senate bill was introduced on its own, but was also part of the larger Retirement Security and Savings Act of 2019, introduced last year by Sens. Rob Portman, (R-OH), and Ben Cardin (D-MD). Portman told 401k Specialist earlier this year he expects the Senate Finance Committee to hold hearings and markup on a 2020 version of the Retirement Security and Savings Act, and said he will work closely with Cardin to move it forward.
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
