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Secure 2.0 presents a game-changing opportunity for plan sponsors and recordkeepers to enable millions of student loan borrowers to start saving – or save more – for retirement. Summer recently hosted a virtual event where our panel of experts dug into the most pressing questions about the matching-contribution provision, its implementation and its benefits.
Our panel was moderated by Bridget Haile, VP of Client Experience at Summer and included Matt Bahl, Vice President, Workplace Market Lead at Financial Health Network; Will Hansen, Chief Government Affairs Officer at American Retirement Association; and Christina Malanga, Senior Operations Manager, Secure 2.0 Project Lead at Summer. Here are the main takeaways from our virtual panel on the Secure 2.0 Act.
1. Employees are increasingly looking to employers to help them deal with the burden of student debt.
And employers are aware of this. Matt noted “employers have long been trying to figure out how to address student loans with their workforce,” highlighting past explorations of costly direct repayment plans as an example.
Secure 2.0 is exciting because, as Matt later pointed out, it goes beyond addressing student debt by presenting borrowers with a vehicle that allows them to simultaneously tackle another major financial challenge: saving for retirement. As a result, Secure 2.0 will get more workers on the path to long-term financial security.
“This is a really good solution for those workplaces that have employer-sponsored retirement plans,” Matt said.
2. Secure 2.0’s tax benefits make it more attractive for plan sponsors to implement.
Christina, who previously led student loan benefits at CommonBond, shared observations from her past experience working with a recordkeeper and large employers during the previous temporary authorization of the student loan-matching benefit. “We saw that many larger employers, who tend to be more risk-averse, didn't want to take this leap and implement [the benefit] even though they wanted to in theory and believed it was a good thing,” Christina shared.
Many employers believed that the tax implications of the temporary authorization meant it wasn’t worth pursuing. Secure 2.0 addresses those concerns, and we’re seeing more employers finally ready to move forward with implementation. Will echoed the growing enthusiasm, stating “[Secure 2.0] is definitely, I would say, in the top five, top 10 of what plan sponsors are talking about when it comes to plan design options down the road.”
3. The best workplace benefits match the needs of the workforce.
“Where we've seen the biggest success in workplace financial wellness programs in general [is] where the employer invests a substantial amount of time in actually understanding the needs of their people – and then designing programs that materially address the challenges their people face,” Matt said. To set their benefits program up for success, employers should first identify those needs and then determine how to start a program that addresses them while also clearly delivering on an ultimate end goal.
Matt also provided a helpful way for employers to think about student loans in particular: if a large portion of an organization’s jobs requires college degrees, odds are that a large number of employees will have student debt. That can be a good proxy to gauge whether or not Secure 2.0 will be an attractive benefit to an employee population.
4. Secure 2.0 doesn’t have to mirror plan sponsors’ current process of matching contributions.
Will, acknowledging that some plan sponsors are unsure about Secure 2.0 implementation, talked about the different approaches employers can take with contribution matching. “If you’re payroll by payroll – let's say, twice a month – and you're putting in your contributions, then that doesn't mean that this optional new design has to mirror that. You can put on other restrictions that will help you keep the cost down or be able to control the cost a little bit.”
Christina added on, noting that the monthly nature of student loan payments along with some borrowers having multiple loans with varying due dates further complicates a payroll-by-payroll approach. Matching contributions annually or quarterly is a more manageable option.
“I think if you truly wanted to go more frequently, you could, but I think that technology is going to come way more into play there,” Christina said. “Especially because you're having to do a calculation and aggregation of multiple data sources.”
For recordkeepers, working with a partner to facilitate monthly matching contributions can help drive growth because the sooner assets are in a plan, the sooner they start growing.
5. Implementing Secure 2.0 is easier than it seems with the right partner.
There’s a lot of information to keep track of in order to properly match contributions to qualifying student loan payments. Which employees have debt? What’s a qualifying student loan? How do you track monthly payments? How do you coordinate student loan payment data with any elective deferrals that the employee already has in place? The administrative burden associated with this can be quite large, as well as confusing – and it can grow further in complexity if matching contributions happen on a frequent basis.
Working with a partner who offers an end-to-end digital solution can alleviate that pressure significantly. As Christina mentioned, whatever system plan sponsors and recordkeepers use has to integrate seamlessly into the ecosystem of the recordkeeper and payroll too. A partner can do this so participants, plan sponsors, and recordkeepers don’t have to sift through documents, payment histories, and statements every month. Furthermore, a partner can make sure the employee-facing part of the solution is user-friendly – a detail that shouldn’t be overlooked.
“It should be simple and fast and accessible for a participant or employee to opt into this or find a way to track their payments,” Christina said. “Otherwise there's going to be low adoption and the intention of this will go to waste.”
6. Participation and retention will be key success metrics for plan sponsors and will drive AUM and revenue for record keepers.
In terms of measuring impact, Matt cited participation in retirement plans and greater retention in a tight labor market as indicators that employers should track. He also shared that Secure 2.0 can give employers a much-needed competitive boost in a tight labor market. “When we continually hear from younger workers, student debt solutions are a key driver of how they view and evaluate which employer to go with and stay at because it is so deeply responsive to a significant financial challenge that they face.”
For recordkeepers, their 2024 scorecard will be measured in AUM and revenue – two metrics that stand to increase with greater participation thanks to Secure 2.0.
Will spoke to the opportunity, stating, “I'm sure some [recordkeepers] are already starting to hear from at least probably some of the larger plans that ‘we're ready to pull the trigger here and implement this one provision.’” Recordkeepers that can support sponsors with the matching-contribution, along with the mandatory requirements of Secure 2.0, will find themselves with a competitive advantage. This is particularly timely given the tightness in the labor market.
7. Resumption of student loan payments will be a financial shock for borrowers.
When student loan payments resume later this year, millions of borrowers will be forced to make payments for the first time since March 2020. Many borrowers will be forced to find, on average, an extra $300 to $400 a month for their loans against a backdrop of high inflation and rising personal debt.
Matt has observed employers thinking about how to set up programs that mitigate the financial shock as much as possible for their employee population. Will, citing findings from a recent Plan Sponsor Council of America survey, noted that the connection between student loans and financial wellness programs is becoming a louder drumbeat among plan sponsors.
“It's clear that the financially unhealthy are not in the workforce, they are the workforce,” Matt said. “I think more employers are sort of catching up to this and also expanding what they constitute as a financial health program. It's no longer just the recordkeeping program and, and an education component. It's incorporating a more total rewards perspective.”
Access the virtual panel recording today to hear from our experts on how to successfully navigate Secure 2.0 in the coming months.
