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Starting 'Blocks'


If your workforce includes recent college graduates – or even not-so-recent college graduates – it’s likely that some of them have debt associated with their college years – and just as likely that it’s hampering their retirement savings. 

Any number of studies have chronicled the impact of this debt on retirement savings. A recent study by TIAA found that an estimated 84% of Americans say that outstanding student debt is hurting their ability to sock away money for their golden years, and roughly three-quarters (73%) say that they’re putting off maximizing their retirement plan contributions, or don’t plan to contribute to a retirement account at all, until their student debt is gone. Among those who haven’t yet started, more than a quarter cite student debt as the reason why.

The non-partisan Employee Benefit Research Institute (EBRI) has found that though those with college degrees are more likely to have access to a defined contribution plan at work, and to participate at higher levels, they have smaller balances. For families with heads younger than 35 with a college degree, the median DC balance was $20,000 and the average balance was $53,638 for the families without a student loan, compared with $13,000 and $32,987, respectively, for the families with a student loan. Said another way, those without student loans had more than 50% more in their DC plan than those with student loans.

Now, it’s always been a challenge encouraging younger workers to save for retirement – but the breadth and depth of the impact of student debt on retirement savings has emerged as one of the most significant challenges of our time. And it’s keeping the next generation of retirement savers from enjoying one of the most significant benefits of a long investment horizon – the magic of compounding!  

This has been a significant and growing concern for our members, both as employers and among the employers they support. In fact, calls to do something to mitigate its impact have only strengthened in the months since the 2018 IRS private letter ruling (PLR 131066-17) which permitted a specific 401(k) plan sponsor to contribute to the plan on behalf of plan participants who pay down student loan debt but do not necessarily contribute to the employer’s 401(k) plan. Since then there have been calls for a revenue ruling that broadens the reach of this guidance. 

A number of legislative proposals would go even further – bills have been introduced by Sens. Rob Portman (R-OH) and Ben Cardin (D-MD), as well as Senate Republican Whip John Thune (R-SD), along with Sen. Mark Warner (D-VA).

Read more commentary from Brian Graff here.

Perhaps the most notable – and one that we’ve been actively engaged on – is one by Sen. Ron Wyden (D-OR), Ranking Member of the Senate Finance Committee. Wyden’s Retirement Parity for Student Loans Act – co-sponsored by Senate Finance Committee members Maria Cantwell (D-WA), Ben Cardin (D-MD), Sheldon Whitehouse (D-RI), Maggie Hassan (D-NH) and Sherrod Brown (D-OH) – would provide a voluntary option for plan sponsors, a benefit that must be made available to all workers eligible to make salary reduction contributions and receive matching contributions on those salary reduction contributions, applied to repayments of student loan debt that was incurred by a worker for higher education expenses, supported by evidence of their student loan debt payments. The legislation stipulates that the rate of matching for student loans and for salary reduction contributions must be the same, and special rules would apply if a worker makes both salary reduction contributions and student loan repayments, such that student loan repayments would only be taken into account to the extent a worker has not made the maximum annual contribution to the retirement plan. 

Significantly, the legislation also provides clarification on certain nondiscrimination rules that apply to 401(k) plans, as well as safe harbors that deem the nondiscrimination rules to be satisfied if certain matching or other employer contributions are made to the plan. And how will potential errors in administration of these programs be addressed? These are important considerations for plan sponsors (and recordkeepers) alike.

The Rolling Stones once told another generation that “time was on their side.” But without a retirement plan solution to the student debt issue, that won’t be the case for millions.

Brian H. Graff, Esq., APM, is the Executive Director of NAPA and the CEO of the American Retirement Association. This column appears in the Fall issue of NAPA Net the Magazine.