A Sunday afternoon session at the start of the 2022 NAPA 401(k) Summit titled Debt “Lode”: Getting “Out” of Student Debt tackled the tricky and timely topic of student loan debt currently weighing on employees.
“When we get the business, we ask the committee why, and they say, ‘You talked about things nobody else did.’”
Jeanne Sutton
It cited data from the Employee Benefit Research Institute, which revealed that the percentage of families with student loan debt grew from 10.5% in 1992 to 22.3% in 2016.
For families with heads younger than age 35, the percentage with student loan debt approaches one-half (45%) of those households.
And it’s not just a problem for younger workers, high-profile host and panel “provocateur” Jeanne Sutton, Managing Director with Strategic Retirement Partners, said at the outset; Gen X households hold mot student loan debt.
So should a busy 401k and retirement plan advisor dedicate time and resources to student debt reduction programs, or is it something to outsource?
“As the debt crisis grows, it blocks other benefits usage,” Eric Brickman, Chief Operating Officer with FutureFuel.io, answered. “We have to unblock these resources to save for retirement, which is one reason I moved downstream [into this business].”
Former HUB Sheridan Road Founder and President Daniel Bryant, now a Partner with Vistria Group, listed several startling statistics to make the case, including:
- 50% of the world’s population is under the age of 30
- The U.S. overall has a 6th-grade financial literacy education
- 87% of younger workers are looking for a company that offers this benefit
- 86% said they would commit five years to that employer
“We know this is a big issue but is it the right issue for retirement plan advisors to focus on?” Bryant said. “We don’t monopolize the narrative; recordkeepers, fintechs, and others also talk about it. We’re part of the conversation, but we don’t control it, so it has to be part of broader financial wellness.”
Nate Moody with Lebel & Harriman explained that “it gets exciting with the convergence of three areas: Demand, Use (employee retention) and why now (or incentive).
“That last point involves tax, and it’s an area that has seen changes in the past few years,” Moody said. “Student debt is a hot-button issue, and the government has indicated it will get behind companies that institute some sort of reduction program.”
He noted that the original SECURE Act expanded the definition of tuition reimbursement to include student debt reduction. In addition to the federal government, states are “jumping in” to incentivize employers to develop private solutions.
Sutton added that her team uses student loan repayment, emergency funds, and other programs as offensive offerings that “ignite the imagination of the committees.” The fact that they bring them up is a differentiator.
“When we get the business, we ask the committee why, and they say, ‘You talked about things nobody else did.’”
In a poll of audience members, she asked what advisor felt participants under age 40 are most concerned with. Fully 67.5% of respondents said “Budgeting/cash flow,” 20% said “Student debt/saving for children’s college,” 10% said “emergency savings,” and only 2.5% felt it was “Retirement.”
“I want to say that again, we’re at a 401k conference, and this is what you think,” Sutton emphasized.
The conversation then turned to how advisors are paid for these services and whether they should be.
Moody argued for “some sort of consultancy fee, helping sponsors develop education assistance programs, for instance.”
“We might charge as we would for an education meeting or one-on-ones, but that model is changing,” Sutton said. “What we also do is get attention with student debt reduction programs, and tell committees, ‘This is typical of what we offer,’ which often leads to their retirement plan business. So, we market this to win retirement plan business.”