It isn't often that a company can claim to be first, but Abbott Laboratories can make that boast in addressing the dueling dilemmas of employees who want to pay down student debt while also contributing to their defined contribution plan.
Under Abbott's Freedom 2 Save Plan, employees who put 2% of their annual salary toward student debt payments will receive a contribution of 5% of their salary – the equivalent of the company match – to their 401(k) plan accounts.
Mary Moreland, executive vice president, human resources for the Abbott Park, Ill.-based company won an Innovation Award for steering this project to launch. "This was part of a broader effort to make program benefits better and to meet challenges," she said. "We wanted to know how we can help employees get started saving early, and to do so it a tax-efficient manner."
The company announced the program in June 2018, one month after receiving a private-letter ruling from the Internal Revenue Service. Company executives asked the IRS for an opinion because "we're very careful," Ms. Moreland said.
"We wanted to understand all the rules. We wanted to be clear it was OK."
Ironically, the company's outside counsel said Abbott didn't need the OK from the IRS, but Ms. Moreland said her company wasn't taking any chances.
As Abbott executives examined the impact on employees, they found that among those still carrying student debt, the average amount was $47,000, she said. The maximum was more than $300,000. Two-thirds of the employees with outstanding student debt were under 35, but 10% were over 45.
About half of the employees carrying student debt were contributing some money to their 401(k) accounts, she said. Under the Freedom 2 Save Plan, as long as an employee contributes 2% of salary each year to paying down debt, Abbott will contribute 5% of salary annually to the employee's 401(k) account — even if the employee doesn't contribute.
Approximately 1,000 employees have signed up for the benefit since Abbott announced it in mid-2018.
"I can see other companies adopting similar initiatives within their plan design, one judge noted."This program really created a conversation on many different levels about addressing student debt, coverage and the retirement savings gap.''
Developing the plan took about two years as Abbott executives examined legal issues, the costs and whether the plan would produce a tangible return on investment.
When asked to describe the main hurdle in creating this plan, Ms. Moreland replied: "It's never been done before."