Embrace 529 plans to help employees close their education savings gap

Over the past few years, the benefits landscape has undergone a dramatic transformation as companies have responded to the evolving needs of their workforce during the COVID-19 pandemic. In today's economy, building an authentic culture of caring is more important than ever. Strategically enhancing benefit options can help companies optimally position themselves as attractive employers and retain today's employees who are increasingly favoring companies that care for and do right by their people.

For benefits professionals looking beyond COVID-19, the next employee wellness frontier is education support. Within this category, a low-cost, easy-to-implement voluntary benefit option is the 529 education savings plan. 

For employees, these plans can be essential. The cost of education in the United States continues to climb dramatically. The "all-in" cost for a year at a private college is currently $55,800, while a student at a public college can expect to pay $27,730 per year, notes the College Board. The struggle to afford higher education was further spotlighted by President Biden's student loan forgiveness program. 

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As with a 401(k) plan, regular or even small contributions to a 529 tax-deferred education savings account can potentially add up significantly over time. This offers a tremendous opportunity to build funds to meet the skyrocketing cost of education. These plans are not just intended for traditional college-bound students. They can help pay for K-12 tuition, technical and vocational school programs, apprenticeship programs, graduate school and more. They can even be used to repay up to $10,000 of the beneficiary's student loans.

Implementing a 529 plan as a voluntary benefit is a way for employers to ease the financial stress of saving for educational expenses. These plans are especially attractive as a benefits option because they are typically a no- or low-cost offering and are easy to implement. Most of the administrative work is undertaken by a plan administrator. Employers are generally only responsible for communicating benefit details to their workforce and taking steps to ensure the benefit is understood and adopted. The 529 plan does the rest.

Once a 529 savings plan option is rolled out, employees can enroll, choose from a menu of investment options and contribute through regular payroll direct deposits into their 529 plan accounts. The money in the 529 plan grows tax deferred, compounding over time, and qualified withdrawals are tax-free. 

As with any new benefit offering, it will require nurturing. The rollout strategy should ideally include education, workshops and tactics that help spread the word through internal communications channels. The plan administrator can assist a firm's human resources department in planning the rollout by supporting financial literacy and ongoing education initiatives, as well as hosting informational sessions and providing enrollment support.

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Ongoing support from employers is crucial. Running seasonal campaigns, for example, can help tie the benefits of a 529 plan to specific themes —  from "back to school" in September to "year-end financial and tax planning" in November and December. Employers also can help publicize a 529 benefit by making direct contributions as a form of employee recognition or incentivize participation through a customized matching program. 

Given that 529 plans are generally sponsored by individual states, multi-state employers may shy away from adopting a 529 plan, fearing complexity. But some plan administrators can offer 529 plans in multiple states, and there are online resources to help give out-of-state employees the flexibility to find and choose from multiple plans.

By introducing a 529 plan as a voluntary benefit, employers can help empower their workforce to take control of one of life's bigger financial challenges, funding education, while simultaneously adding a new feature to their recruitment toolkit. That step, in turn, can help attract and retain top talent at a time when demonstrating a culture of caring matters most.