The New York-based, fintech 401(k) service provider announced that it has launched the first commercial product allowing small- and mid-sized employers to automatically match employee student loan payments with a 401(k) contribution.
Betterment at Work’s new offering comes as Section 110 of the SECURE 2.0 Act goes into effect this year (2024). The provision allows employers to make matching contributions under a 401(k) plan, 403(b) plan or SIMPLE IRA with respect to qualified student loan repayments that, for purposes of the provision, are deemed to be elective deferrals.
The new provision is intended to help employees, who are saddled with student loan debt and often have had to choose between contributing to their retirement plan or paying off their student loans. Currently, more than 43 million individuals carry federal student loans in the United States.
In fact, a recent survey from Betterment found that 40% of workers currently have student loan debt that they’re responsible for paying down—either their own, or on behalf of a child or relative—and the majority owe more than $10,000. The survey also found that 64% of borrowers said their student debt has impacted their ability to save for retirement. In addition, a strong majority of the Gen Z members the firm queried—81%—said student debt created anxiety for them. And a majority almost as strong—71%—said they think employers should help them pay it off.
“We know that student debt can be a major impediment to saving for retirement,” Sarah Levy, CEO of Betterment, said in a statement. “Our industry-first student loan 401(k) matching solution is a compelling addition to our modern 401(k) that will help to broaden plan participation to those whose student debt previously kept them from saving for retirement.”
Employees with access to Betterment’s 401(k) can record qualified loan payments within the platform. Employers can then match these payments with a contribution to the employee’s 401(k), enabling borrowers to pay down loans while continuing to proactively save for retirement.
To simplify administration of this new match, employers can choose to make the match annually even if their other 401(k) match happens on a per-payroll basis, according to the firm’s announcement.
Regarding implementation, the American Retirement Association earlier this week wrote to the IRS requesting a number of clarifications as it develops guidance on the student loan changes. At present, the IRS has not yet issued formal guidance on the changes.
Betterment at Work is a leading provider of 401(k)s and modern financial benefits for small-to-medium-sized businesses. To learn more about Betterment’s 401(k) and this new offering, visit the firm’s website here.
