Employers target student loan debt to boost retirement

Employers are trying to help employees alleviate the burdens of outstanding student loans by offering to pay off some of the debt — more than $1.4 trillion in the U.S. alone, according to the Federal Reserve.

It's a relatively new benefit whose goal is usually described by employers as a way to attract and retain talent. Employers also say helping employees pay down debt could help them pursue goals such as buying a house, starting a family or saving more — and earlier — for retirement.

"We wanted to create a benefits program aligned with our employee base," said John Samaan, senior vice president and head of human resources for Millennium Trust Co., Oak Brook, Ill. The company, which employs a number of young professionals, launched its program in March.

Millennium Trust polled employees last year about a wide range of benefits. "They overwhelmingly wanted help in paying off debt," said Mr. Samaan, noting approximately 20% of the company's 325 employees participate in the loan repayment program. He declined to describe the terms other than to say his company will make a monthly payment up to a maximum amount in a program offered through Fidelity Investments, Boston.

"Most employers are seeing this as a separate benefit" unrelated to their defined contribution plan, said Asha Srikantiah, a Fidelity Investments vice president who supervises the firm's student debt program. Clients can choose the frequency and amount of payments and the cap on payments, as well as target the audience by salary, by tenure and even by location.

By the end of June, Fidelity had 25 clients with an estimated 9,000 employees participating in the program. That figure includes 6,000 Fidelity employees, she said. Fidelity makes payments of $167 per month with a five-year cap of $10,000. About 40% of Fidelity's 50,000 employees are eligible, The program is available to workers below the director level.

Fidelity research from 2016 showed more than one-third of all employees had student loan debt, and 79% of this group said student loan debt interferes with their retirement savings. The research was based on 496 responses from a random sample of participants in Fidelity record-kept defined contribution plans.

Half of the student loan debt group had loan balances exceeding $25,000.

However, Ms. Srikantiah acknowledged the hurdles benefits managers face when considering a loan repayment program, such as the cost to the employer, the administrative requirements, the lack of a tax benefit and the fact the loan payment is the same as raising an employee's income.

Employers' overall response to student loan repayment programs is modest. Annual surveys by the Society for Human Resource Management, Alexandria, Va., show 4% of companies have offered student loan repayment programs in each of the past three years. The 2018 survey contained responses from 3,518 HR professionals.

When Alight Solutions asked employers if they offered some form of student loan assistance, 5% said they offer loan repayment programs while 4% said they would very likely offer it, according to a survey published in January.

Another 11% said they offer tools to help employees consolidate or refinance student loans, and 15% said they would very likely offer such tools, said the survey covering 187 employers with approximately 8 million employees.

New York Life Insurance Co. began offering a student loan debt repayment program in September 2017 to attract and retain employees as well as to "take the stress off" them, said Angela Murawski, corporate vice president for human resources.

"We monitor benefits (within the industry) and this is an emerging benefits trend," said Ms. Murawski, adding that 800 employees have taken part. The program is available to non-officers.

New York Life works with Student Loan Genius, a third-party vendor that provides student loan advice and administers the repayment program.

New York Life pays participants $170 per month up to a five-year maximum of $10,200. Ms. Murawski said the payment program most likely will affect employees younger than 40. New York Life's record keeper, Alight Solutions, sends a list of eligible employees to Student Loan Genius.

The student loan debt repayment program at PricewaterhouseCoopers has received a "strong response" from employees as well as job candidates, said Rod Adams, the financial and tax-consulting services company's U.S. and Mexico talent acquisition leader.

The program started in 2016, and approximately 8,600 employees have signed up. Offered through third-party vendor Gradifi, the program will repay $1,200 a year in student loan debt up to a six-year cap of $7,200.

Like Student Loan Genius, Gradifi is one of an emerging group of third-party firms offering student loan advice and/or loan-repayment administration to employers.

"It's definitely been a differentiator in hiring," said Mr. Adams, adding that PwC hires 6,000 entry-level employees each year. The program is offered to employees below the manager level, but he didn't provide a number.

The prospect of helping employees deal with student loan debt forces employers to wrestle with an assortment of financial, administrative and corporate culture issues.

For example, which employees are eligible? Will employees who don't have student loans feel their peers are unfairly receiving an extra benefit? How much should an employer pay — and over what time period? What about the tax implications to employers and participants? Should the student loan payment be a separate benefit or linked to a company retirement plan?

The financial and administrative issues have prompted some employers to offer advice on loans rather than loan repayment programs.

Los Angeles-based VCA Inc. took the advice-only approach in late 2016.

"We said, 'Let's start this way and go from there,'" said Don Cervantes, director of benefits for the company, which operates animal hospitals, and offers veterinary diagnostic and dog day care/boarding services in the U.S. and Canada.

"The primary issue is our ... (veterinarians) who come with very material debt," said Mr. Cervantes. "Debt prohibits them from home ownership and saving for the future."

Through its record keeper, Prudential Retirement, VCA signed up for a student loan counseling program operated by Student Loan Genius. Mr. Cervantes said his company chose this approach because it liked the "independent research and referral" information offered by the firm. VCA, which was acquired in September by Mars Inc., makes the loan advice program available to all employees.

According to Prudential's estimate, 583 of 4,000 eligible VCA employees have enrolled in the student loan advice program as of June.

Most of Prudential Retirement's clients seeking student debt assistance have chosen the advice approach via the firm's partnership with Student Loan Genius, said Snezana Zlatar, senior vice president and head of full service product and business management at Prudential Retirement in Newark, N.J. The advice includes information on refinancing and paying off student loans.

Prudential Retirement's parent company, Prudential Financial, doesn't offer the Student Loan Genius service to its own employees. However, since the beginning of 2017, the company has given new employees hired through its campus recruiting program up to $5,000 to help pay off student debt, after one year of employment.

Prudential also has offered, on a pilot basis, an option where clients can set up a non-elective contribution for a certain group of participants. Ms. Zlatar said there hasn't been much interest in that option yet, adding, "it's still fairly early."

Although some providers and sponsors say paying down student debt could encourage employees to save more for retirement, research from the Center for Retirement Research at Boston College shows the connection is overrated.

"The actual size of the student loan does not seem to matter," said a report first issued in September 2016 and revised in May 2018. "Those with student loans have lower retirement savings, but retirement wealth accumulation is similar for those with small loans and large loans."

In an interview, Matthew Rutledge, a research economist at the center, said: "There's something about a loan, even a small loan, " that prompts employees to create a hierarchy of spending.

"Retirement savings has to wait its turn behind the loan and behind (paying for) a house," said Mr. Rutledge, one of three authors of the report. "People think of paying off a student loan as separate from retirement savings."