In a bid to help employees with financial wellness — and potentially boost employer recruiting and retention efforts — many employers will consider adding student loan matching and emergency savings provisions to their defined contribution plans as provided under the SECURE 2.0 Act of 2022, a massive package of legislation to improve retirement savings in the country, experts unanimously agreed.
The student loan matching provision allows employers to make matching contributions for student loan repayments, meaning employees who were previously not contributing to their retirement accounts can now get a match if they're paying back their student debt.
The emergency savings provision allows employees to set aside $2,500 into an emergency savings account that is linked to their workplace retirement savings plan.
"I think in 2024 plan sponsors will be spending a lot of time talking to their record keepers and talking among themselves as a committee about whether to add some of these provisions," said David Stinnett, head of strategic retirement consulting at the Vanguard Group, referring to student loan matching and emergency savings.
Aon's Beebe sees especially strong interest among employers in student loan matching, even though not many appear to be implementing the provision for 2024.
Because many employers already have programs to help employees with student loans, they're trying to assess whether the 401(k) plan is the right place to provide student loan assistance, he said.
In addition to determining whether student loan matching and emergency savings makes sense, plan sponsors will take stock of how employees are using the plan and analyzing their investment lineups to make sure they have the right offerings.
Industry experts do not expect plan sponsors to make any major changes to their plan lineups and are unlikely to replace or supplement their stable value funds with money market funds following a period of high interest rates and inflation that many now expect to subside.
"Once you put something in the fund lineup, you need to really think about it being a long-term option," Aon's Beebe said, referring to money market funds in plan investment lineups.
When interest rates fall and money market funds no longer have a yield advantage over stable value funds, plan sponsors might regret having added them to the lineup, he said.
Holly Verdeyen, U.S. defined contribution leader at Mercer agreed, saying the yield advantage of money market funds is very short-lived.
"This is going to be a very short-lived phenomenon where money market funds have a higher yield than stable value," she said.
While plan sponsors are unlikely to change their investment options, they will look at the engagement levels of target-date fund users as well as the do-it-yourselfers and those who use managed accounts, said Callan's Ungerman.
Plan sponsors will re-evaluate managed accounts "in a thoughtful manner just like they do the rest of the investment managers in the lineup," he said, explaining that they'll scrutinize the managed account's methodology, ongoing performance and how it interacts with participants.
Otherwise, he said, managed accounts could be "expensive target-date funds."
Target-date funds will also be carefully weighed given their pervasiveness in defined contribution plans.
"Sponsors should continue to focus on making sure the fund they have fits the needs of their plan," Vanguard's Stinnett said, explaining that they should understand the target-date fund's glidepath methodology, fund expenses and "the rigor that goes into policy changes to the target-date fund."