Secure 2.0 introduced a transformative shift in employee benefits, including a provision that significantly impacts talent retention and acquisition strategies. This provision makes it possible for employers to match student loan payments with contributions to employer-sponsored retirement accounts, which means that employees who were previously passing up 401(k) matches due to the burden of student loan debt now don’t have to. However, as with any new legislation, there's confusion surrounding its implementation and impact. Let's clear the air and debunk some common misconceptions about this exciting opportunity.
One major hurdle to its implementation is awareness; both HR pros and employees alike are still parsing through all the Secure Act’s provisions, and are just starting to wake up to the potential of this particular benefit that sits squarely at the cross-section of student loan assistance and retirement savings. Once it gets up and running, the impact will be tremendous. In any given month, about half of workers are engaged in the process of leaving their jobs, and among workers with student loan debt, that number increases to more than 3 out of every 5. Imagine how that stat might shift if employers were able to alleviate some of that stress! Employees broadly agree – one survey found that 78% of student loan borrowers think their employer should help them with student debt.
Even once the benefits are clear though, there’s still some complexity to navigate. I’ll take some of the most common misconceptions I hear and handle them one by one so you can confidently take advantage of this up-and-coming benefit.
Misconception 1: The match goes towards an employee’s student loans
This is by far the most common (and understandable) point of confusion we’ve encountered about this new benefit. Because student loans are involved, it’s easy to assume that matching dollars go to student loans, but the reality is much more attractive: the provision makes it possible to match a student loan payment with a 401(k) contribution only. This allows employees to both pay down their debt and to take advantage of a match, and further their retirement savings goals.
Imagine John, who earns an annual salary of $50,000. John's employer offers a 100% match on 401(k) contributions up to 4% of the salary, which John hasn't taken advantage of due to focusing on student loan repayments. Before the Secure 2.0 Act, John was essentially foregoing an additional $2,000 (4% of $50,000) in retirement savings annually. However, John makes $200 in student loan payments each month.
With the Secure 2.0 Act, those $200 monthly payments can now be considered when determining eligibility for the employer's retirement match. This means John could potentially receive the $2,000 match in their retirement plan each year, without having to change their focus from paying down student debt.
The value of compounding returns cannot be overstated. If John starts investing this $2,000 annually in their 20s, assuming an average annual return of 7%, they could see this grow to over $200,000 by the time they retire - a huge impact thanks to the power of early investment and compounding.
It’s a win-win for both John and his employer: he doesn’t fall behind on investing for her future, and her employer is able to count her as a participant in their retirement plan.
Misconception 2: Employees can’t combine student loan matching and retirement matching
Part of the beauty of this provision is that it allows employees some flexibility with how much they contribute to both their student debt, and to retirement savings – it doesn’t lock them into picking only one option.
Meet Sarah, who also earns $50,000 a year but contributes 2% of their salary to a 401(k), securing a $1,000 match from their employer. However, by not maximizing the potential 4% match, Sarah leaves another $1,000 on the table each year. Sarah also has student loan payments of $200 a month.
Thanks to the Secure 2.0 Act, Sarah's student loan repayments can help them secure the full employer match. This adjustment would boost Sarah's annual retirement savings by an additional $1,000, without increasing out-of-pocket expenses, effectively maximizing their benefits under the employer's match program.
Misconception 3: It’s hard to implement
This is a brand new benefit, and it’s understandable that there are a lot of questions and concerns about how time consuming and difficult this will be for HR teams to implement. The good news is that it doesn’t have to be complicated. Recordkeepers, retirement providers, and trusted tech solutions like Summer are already on top of enrollment and implementation, and there are tools that can help you enroll your employees, gather verification or self-certification, and match up the data so you don’t have to do it on your own.
It’s also worth noting that Secure 2.0 specifies that the set up for matching student loan payments should be the same as matching retirement contributions. So if you offer a 4% match on retirement contributions, for example, you’d also offer a 4% match on qualifying student loan payments. The tax advantages for both types of matching are mirrored as well –– all of which means it’s likely a simple update to your retirement plan design.
This is a tremendously exciting new benefit that’s a win for employees and employers alike. With student loan payments now due for the first time in over three years, it’s a perfect time to take advantage of the new benefit to protect retirement plan participation and boost employee’s financial health.
The Bottom Line:
Implementing student loan matching through Secure 2.0 addresses two critical employee concerns: managing student debt and saving for retirement. By offering this benefit, you're not just helping your employees achieve financial wellness; you're also helping your company win the talent war in a competitive job market. With the right tools and partners, implementation can be straightforward and seamless. Interested in learning more? Email us at partner@meetsummer.com
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