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Companies can now offer employees “matching” student loan payments in the form of contributions to 401(k) plans—an opportunity a handful but growing number of employers are taking advantage of.
Traditionally, companies would only pay employees a 401(k) match based on their circumstances Voluntary contributions to workplace retirement planning. For example, a worker who chooses to contribute 3% of his annual salary into a 401(k) plan may receive a 3% match from his employer.
Now, companies can treat employees’ student loan payments as optional 401(k) plan contributions.
Federal law allows employers to match workers based on their ability to repay student debt. Workers generally do not have to contribute to a 401(k) plan to qualify for funds.
The measure is part of a retirement reform package known as “Security 2.0.” kicked Starting in 2024.
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The goal of the policy is to help workers resolve two competing financial obligations: paying down debt while saving for retirement.
According to Fidelity, the largest 401(k) plan administrator in the United States, more than 100 companies have implemented this benefit so far, covering nearly 1.5 million eligible employees.
Jesse Moore, senior vice president and director of student debt at Fidelity, explained in an email that these include “some of the largest companies in the country” such as Kraft Foods, Workday and News Corp.
“More people are showing strong interest in providing this service by 2025,” Moore said.
About 5% of employers have increased this benefit, according to soon-to-be-released survey results from Alight, one of the largest retirement plan administrators in the United States.
Another 12% of employers said they were “very likely” to adopt it in 2025, while 29% were “moderately likely” to do so, according to Alight. In September, it surveyed 122 employers with a total of 11 million workers.
Financial assistance and employee retention
Rob Austin, director of thought leadership at Alight, said in an email that interest has grown in large part because of Secure 2.0, which allows companies to do just that.
Comcast is among employers increasing 401(k) matching benefits for student loans next year.
A Comcast spokesperson said offering the benefit will help employees “manage their long-term financial health” in a tax-efficient manner.
They said about 90,000 U.S. employees are eligible to participate in the competition, which offers bonuses of up to 6% of their qualifying annual income.
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Experts say some companies also view matching programs as a way to attract and retain college graduates in a highly competitive field.
“We’ve heard from many employees that they are struggling with their student loans,” especially those early in their careers, a Comcast spokesperson said.
“We are working hard to build a value proposition that meets (workers’) needs,” they said.
The student loan measure also applies to companies that sponsor other types of workplace retirement plans, such as 403(b) or government 457(b) plans or SIMPLE IRAs, according to Go to the IRS.
How student loan benefits work
Brian Dobbis, head of retirement solutions at financial manager Lord Abbett, said the maximum amount of a “qualified student loan payment” is typically limited to annual salary deferral limits. 401(k) Limitations is $23,000 2024, for workers under 50 years old.
Here’s a general example: A 30-year-old joins a 401(k) plan in 2024. If they also made $8,000 in student loan payments that year, only $5,000 of those payments ($23,000 minus $18,000) would be eligible for the match, Dobies said.
A worker’s final match amount is determined by the employer’s respective match cap, which is typically set at around 3% to 6% of the worker’s annual salary.
Of course, the interest structure of different companies may vary.
Companies are already benefiting from Secure 2.0
Even before Secure 2.0, employers were offering student loan benefits tied to 401(k)s.
Abbott is a healthcare technology company that provided Since 2018, it has offered similar benefits through its “Freedom 2 Save” program, which is considered become The first of its kind. company safe A private letter ruling from the Internal Revenue Service (IRS) can do this.
Since then, more companies have followed suit.
For example, about 1% of all 401(k) plans are offering or plan to offer a match based on student loan payments by 2022, according to an annual survey by the American Council of Plan Sponsors, a trade group. That will increase to about 2% by 2023, according to the organization’s latest poll of 709 employers, which will be released this month.
“Pharmaceutical companies were among the first to adopt this idea, likely because Abbott was the first to propose it and competitors followed suit,” Alight’s Austin said.
The PSCA found that the largest companies, or those with more than 5,000 employees, would see the largest increase in share, rising from 2% in 2022 to nearly 5% in 2023.
PSCA research director Hattie Greenan said there appeared to be “increased interest” from companies with large numbers of college-educated workers.
“We will continue to see this number slowly increase as these companies look for ways to differentiate benefits packages for top talent and address some of the complex management issues,” Greenan said.
Why many companies aren’t increasing student loan matching
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However, most companies remain on the sidelines.
For example, according to Alight’s survey, 55% of employers said it was “not at all likely” that they would add this requirement in 2025.
Ellen Lander, founder of Renaissance Benefit Advisors Group in Pearl River, New York, said there are many reasons why a company might not want to implement this measure, and the reasons may vary from company to company.
Her clients haven’t chosen to adopt it yet.
For one, employers may already offer different educational benefits to their employees. Additionally, she said that without evidence that even those with student debt are not participating in 401(k) plans, businesses, especially those with higher revenues, may not feel they need the benefit.
Rand said some employers may already offer annual non-elective contributions (perhaps profit-sharing contributions) to workers, even those who don’t participate in the company’s 401(k).
Rand said one client also believed the student loan policy was “unfair” because it only applied to a certain segment of workers (i.e., those with student debt).
“I hope every client discusses this with their advisor,” Rand said. “To me, it’s something you should definitely consider. And then you need to think deeply about: Do you need it?”
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