Student debt looms large as a retirement savings impediment, particularly for younger workers. However, a recent Private Letter Ruling (PLR) from the IRS was seen by some as offering a step toward aligning those interests. So, what are NAPA Net readers hearing – and thinking – about this “new” opportunity?
We asked readers if plan sponsor clients/prospects had reached out about the possibilities with the PLR – and for a large plurality (48%), they had – but only a couple. Another one in five (22%) said they hadn’t… yet, while nearly as many (17%) simply replied “no.” Just 13% indicated a clear affirmative response.
As for what they were asking, readers said they “loved the idea and wanted to know it the ruling could be applied to their plan,” wanted to know “how does the program work? Can I implement a similar program?” and in many cases were simply curious, and asking for more information.
Plan Sponsor Response(s)
In situations where plan sponsors had reached out, we asked how readers had (generally) responded. Not surprisingly, the answers were varied. A plurality (27%) told them that this (the PLR) is a unique situation, not broadly available, and 23% responded to specific questions (one reader explained, “After the explanation they were no longer interested, so I guess I did a good job :).” Approximately 9% each either forwarded articles on the subject or told the plan sponsor they would get back to them. The rest hadn’t heard from plan sponsors on the subject.
We also asked if readers had reached out to plan sponsors on the issue, and found that 35% were “waiting for more information” to do so, 22% hadn’t done so – yet, and 17% hadn’t. The remaining 26% had, of course.
On the other hand – we asked readers if they thought the ruling would have a widespread impact if it were more broadly applied.
39% - yes, depending on the impact of non-discrimination testing
39% - by some, yes, but not by many
4% - interest yes, takeup no
4% - no
“It is still an education process and a learning curve for clients – it will take some time I think,” commented one reader. “There would be no reason to not have this as a plan option,” noted another. “I do not believe there will be widespread interest by plan sponsors for cost reasons,” said another.
“There is no question that student debt is pervasive. Due to the PLR and previous ‘press,’ plan sponsors have become very aware of the ever growing student debt,” commented one reader. “Our firm (like many) already reimburses employees for continuing education. That does not help with existing student debt, but does provide a significant benefit to those individuals still seeking education.”
“I think this is something to watch closely,” explained another. “There will be more requests and eventually, the government will have to provide more guidance and/or introduce a regulatory solution that can be rolled in larger numbers.”
Speaking of the future, “Companies are starting to take a deeper look into this as a benefit. In the tech sector this is a differentiator in a highly competitive industry,” commented another reader.
“Plan sponsors definitely seem interested in helping new employees with student debt but not connected to the 401(k) plan. They are looking at all their benefits and seeing if there is something they could take away (perhaps not meaningful) and what they could replace it with.”
“I get what they're trying to do with this PLR, but the logistics are a nightmare for all parties involved!” noted another.
“Debt is a serious issue among many – especially college debt, so talking about it is an important first step.”
“I believe that, via a retirement plan solution or not, in five years the majority of employers will have implemented a plan to assist with student loan repayment,” said another.
On the other hand, as one reader noted, “401k plans doesn’t seem like the place for student loan repayment programs.”
“I have had one client inquire about this on behalf of a participant who is interested. They like the idea and hope it will be broadened for all employers,” commented another. “I can see what a good opportunity it would provide younger participants to get a jump on retirement savings. Which I am all for. However, from an administrative standpoint it seems like it could be full of problems. The first is verification. Keeping track of participants to make sure they are really making loan payments would be a big problem. Then there are the participants who do not have student loans but have lots of other debt who do not get the same treatment. I can see complaints of discrimination being leveled at plan sponsors. At this time, I think it really needs a lot of review and discussion to smooth out the potential wrinkles.”
Thanks to everyone who participated in this week’s NAPA Net reader poll!
