Understand SECURE 2.0's student loan provision to help employees with debt

Having student loan debt may no longer be a barrier to saving for retirement. But employers have a lot of work to do to make this dream a reality. 

Starting this year, retirement provisions within SECURE 2.0 will allow employers to match a percentage of an employee's student loan payment and direct it into a retirement plan. For the millions of people saddled with student debt, this could help them catch up on years of missed retirement savings opportunities: Fidelity found that 67% of those with loans say their debt prevents them from contributing to their retirement plan. 

However, employers may be dragging their feet when it comes to implementing this feature into their 401(k) plan, and may not even understand the basics of it to begin with, says Will Sealy, co-founder and CEO of Summer, a student loan navigation tool for employers. 

"A lot of employers have said, 'We're paying the debt for the employee so they can save for retirement.' And you can do that, but this provision is the opposite," Sealy says. "It's the employees paying off their student loans, and with that proof of payment, employers are able to use that as a contributing match to the retirement account."  

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This opportunity can be a game changer for younger employees in particular, as the earlier you start saving, the more you benefit from compound interest, Sealy says. Yet employers also need to deal with the fact that this group is overwhelmed by their financial obligations in the present, and often aren't even thinking about the long-term. 

"If you've ever talked to someone in their 20s or 30s, they have $1,000 student loan payments each month, the cost of living and other things are prohibitive," he says. "So when their employer says, 'We will match up to 4% of your retirement plan,' they say, 'No thank you, I have to cover my costs today, not interested.'"

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Employers are also navigating how they will incorporate this provision into their current 401(k) plan design. Employers will have to work with their retirement benefit provider, their payroll company or other benefit platforms. The process is slow and unclear at this point, Sealy says. 

"Because there's so many various approaches to this, the source of confusion is who's doing it. Is it by payroll provider? Is it by record keeper? How do I actually incorporate this into my insurance?" he says. "In compliance and in the HR world, it takes a few years for the industry to figure out what they should be doing and how they should be doing it. There are many employers that are still in a wait-and-see mindset." 

At Summer, the company provides end-to-end service for their clients who are interested in incorporating this benefit into their existing plans. The platform already helps employees navigate their student loan eligibility, plan out their monthly payments, navigate forgiveness programs and eventually lower or eliminate their debt. Tackling this new provision is the next phase of their business, Sealy says. 

"We have built out a TurboTax-like product that navigates people's situation and automates that entire process," he says. "We have handled compliance for employers as well. On average, we've saved borrowers in the last three years $1.4 billion of student debt. And a lot of them have been able to pay back their retirement." 

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Whether employers implement this provision now or in the near future, it's absolutely essential they address the financial and psychological burden student debt is having on their workforce, Sealy says. While just a third of employers currently offer a student loan repayment program, according to the Employee Benefit Research Institute, these benefits build trust among their workforce, and will eventually pay for themselves.

"When the employer has a service to help people get out of debt, their psychology completely shifts — this is an opportunity to really do something that they've been ashamed about and struggling with," Sealy says. "Employee adoption skyrockets, because it's coming from the HR team, which employees trust. There's an ROI on where their benefit dollars go — employee retention shoots up an average of 30 to 40%." 

Sealy encourages employees to reach out to their record keepers and establish a plan for implementing the student loan provision as soon as possible. Financial wellness is not an area where employers — or employees — can afford to idly stand by. 

"Student loan payments were paused by the federal government and there was an expectation that it would be wiped out. Some HR leaders thought, well, I'm not going to take any action," Sealy says. "But over the next few years, as employers hear from their employees, they'll wake up to the realities. I would want to proactively help my employees with this and show them that I'm paying attention, that I'm aware of the changes in the market, and what it means for them in their everyday life."