Sponsors continuing on path to alleviate big financial burdens

Defined contribution sponsors enter 2020 seeking to take more action to ease participants' financial concerns of today so they can adequately plan for tomorrow.

Some are augmenting standard financial wellness programs and services with more aggressive efforts.

These advances are new and rare — such as offering a 401(k) contribution to participants who pay down student debt each year or creating a system by which a portion of a participant's 401(k) contribution is put into an emergency savings account.

These practices represent some sponsors' willingness to stick their necks out in an industry characterized by caution.

"There is not an overwhelming consensus to move from providing education to (providing) tools and solutions to (contributing) actual dollars," said Alison Borland, the San Francisco-based executive vice president of wealth solutions for Alight Solutions.

"Risk aversion is rampant," Ms. Borland added. "To be first or an innovator can be perceived as risky or intimidating."

Still, Ms. Borland said student loan assistance and emergency savings programs are "emerging topics" of discussion — and perhaps action — among sponsors.

When contemplating new responses to today's financial dilemmas for participants, sponsors are weighing costs vs. prospective benefits while also navigating the thicket of federal regulations to avoid running afoul of the Employee Retirement Income Security Act.

"Retirement is important, but there are other things that are important, too," said Neil Lloyd, partner and head of U.S. DC and financial wellness research for Mercer, based in Vancouver, British Columbia.

If employers can help workers with immediate issues like student loans, "maybe employees will contribute more down the road" for retirement accounts, Mr. Lloyd added.

There's no "maybe" about Abbott Laboratories' pioneering effort to link paying down student debt with a reward of a corporate contribution for a 401(k) account.

Announced in June 2018, Abbott's Freedom 2 Save Plan gives employees who devote 2% of annual salary to paying off a student loan a contribution of 5% of salary — the equivalent of the company match — to their 401(k) plan accounts.

As long as employees meet the 2% student debt payment rule each year, they will receive the 5% company 401(k) payment even if they don't contribute to the 401(k) plan.

Following Abbott's announcement, "I have seen the interest level of our clients go through the roof," said David Amendola, the Stamford, Conn.-based director of benefits advisory and compliance for Willis Towers Watson PLC.

"I have had 75 to 80 conversations with employers over the last 18 months. There has been a big uptick in recent months for more serious conversations," Mr. Amendola added.

Employers view student debt assistance as "a potential talent attraction tool in a tight labor market," he said.

However, some employers remain cautious because they want a private letter ruling from the IRS before they proceed, he added.

In October, the IRS issued its 2019-2020 priority guidance plan. Among the 203 projects, the IRS listed guidance on student loan payments and qualified retirement plans.

Abbott acted after it received the OK from the IRS. Mary Moreland, executive vice president, human resources, told Pensions & Investments in an October interview that although company's outside counsel said such an endorsement wasn't necessary, her company was being "very careful."

Starting this month, Travelers Cos. launched its version of tying corporate 401(k) contributions to employees paying down student debt.

Travelers will contribute up to 5% of salary, or $7,000, to the 401(k) accounts of employees who pay down student debt. Employees don't have to contribute to their 401(k) plans to qualify.

The company's 401(k) match is one dollar for every dollar contributed by a participant up to 5% of annual salary.

"We wanted employees to pay down student loans without sacrificing the match," said Greg Landmark, senior vice president of total rewards, based in St. Paul, Minn., describing the Paying It Forward Savings Program.

Student loan debt "is a significant issue in the U.S.," he said. "For a large section of our workforce, this weighs on them."

About 1,500 employees have registered for the program.

Travelers didn't seek an IRS ruling because its outside counsel said it was not necessary, Mr. Landmark said.

The program is administered by Fidelity Investments, Boston, the Travelers 401(k) record keeper. Fidelity is administering a similar program, offered by Raytheon Co., Waltham, Mass., linking a corporate contribution to an employee's 401(k) account contingent upon the employee paying down a certain amount of student loans. The program also began this month.

For several years, Fidelity has offered a student loan financing service to clients in which it administers student loan repayments. This service isn't connected to clients' retirement plans.

One Fidelity client is Unum Group, Chattanooga, Tenn., which allows employees to convert unused personal time off into student debt payments.

The program started this month.

At the end of each calendar year, employees can convert between eight and 40 hours of unused PTO to pay off student loans. PTO also can be used for a student loan repayment for a spouse or child as long as the employee is the signatory or co-signer of the loan. PTO is converted into funds that will be paid to loan servicers.

Most corporate efforts aimed student debt relief for employees aren't linked directly to retirement savings.

A 2018 survey by Willis Towers Watson said 8% of employers offered student loan consolidation programs, adding that the rate could rise to 34% by 2021.

Also, 10% of employers offered student loan refinancing arrangements, which could increase to 35% by 2021.

The survey, which covered clients and non-clients, was based on responses from 336 U.S. employers representing more than 4.3 million employees. Eighty percent of the respondents had more than 1,000 employees.

An Alight Solutions survey, to be published this month, describes corporate aid for student debt relief among employees as a continuing "hot topic," but it adds that only 6% of respondents offered student loan repayment assistance — providing money to employees to help pay off student debt — compared to 5% in the previous year's survey. This practice isn't linked to retirement plans.

The report, covering clients and non-clients, represents responses from 131 employers with 5.5 million employees.

As the burden of student loans thwarts participants' ability to save for retirement, so do financial emergencies, which can lead to leakage.

"When financial emergencies occur and your savings are low, you have to get the money from somewhere," said Yanela Frias, president of Prudential Retirement, Newark, N.J. "A retirement plan is the easiest and most liquid. Loans and hardship withdrawals impact the growth potential of defined contribution plans."

Prudential, a DC plan record keeper, has developed a program that enables participants, through payroll deduction, to devote a portion of their retirement contributions to an emergency fund on an after-tax basis. Participants can start with 1% but they can contribute as much as they want. They can change amounts, stop contributing or restart contributions.

Participants can use this money when — or if — necessary, rather than tap their retirement accounts or seek a payday loan, Ms. Frias said. "We want to arm people to be prepared for an emergency."

This emergency fund can have access to institutionally priced investments, and Prudential suggests they include "liquid and low-risk" choices such as stable value and money market funds.

Sponsors can choose their own investment lineups, and employers can contribute to the emergency fund. If there's no emergency, the money becomes part of the participant's overall savings.

"Our hope is that this feature becomes a foundational plan design feature for our institutional clients," Ms. Frias said.

Prudential launched the program in July 2018. It had 18 clients as of Jan. 3, and four more are expected to offer the program during the first half of the year.

"While there are no major hurdles to offering this feature, education is central to helping sponsors understand the advantages of adding it to their plan offering," Ms. Frias said.

For plans that lack an after-tax contribution option, this program "may require a plan design change, which can take time for plan committees to approve and execute," she said.

Prudential wanted to initially limit the number of clients because "it's still a new concept in the industry," Ms. Frias said.

"We are in the test-and-learn stage to determine what experience drives the best participant engagement and outcomes. We expect to see more uptake in 2020," she added.

One early client was Dawn Food Products Inc., Jackson, Mich., which began offering the In-Plan Emergency Savings 12 months ago, backed by an education campaign featuring a steady flow of emails, postcards and videos.

"We call it the 'drip strategy' to keep the message going forward," said J. Brian Coleman, vice president of total rewards. "If you don't have money in your pocket, you can't save for retirement."

Mr. Coleman said the "rainy day fund" is one of several steps the company has taken in recent years to reduce leakage and increase participation. He said 75 participants have signed up so far.

"If you are constantly worried about the present, you are not thinking ahead," Mr. Coleman said.