Juan called me the other day with an interesting problem:
“We’ve been hiring a lot of young people right out of college,” he explained. “We try to set them up with our company retirement plan but they’re all drowning in debt. They’re declining to participate because too much of their paycheck is going to pay off their student loans. That means they don’t get to save for retirement and our plan doesn’t get the contributions. It’s a lose-lose situation!”
“I think I have a solution for you. New legislation called Secure 2.0 allows employers to count employees’ payment of student loan debt toward 401k deferrals, and if the company matches they will match on those student loan payments, starting in 2024.
“Great!” exclaimed Juan. “How does that work?”
“Well let’s say your company offers a match of 100% on the amount that an employee defers into the plan. If you have one employee who defers zero into the plan but makes $5000 worth of payments toward student loan debt, that employee will get a $5K match into their retirement account.”
“I can see how that would make young employees happy, but…”
“Just think about it,” I suggested. “It is an optional provision so employers can choose not to implement it, but it does offer a nice way for young employees to start saving for retirement. Dollars put in early on are the most valuable.”
“It could offer an advantage when we’re negotiating salaries with new hires,” observed Juan.
“Exactly,” I agreed. “If you manage it correctly, you can turn that lose-lose into a win-win.”