In this blog, we catch up with Christina Malanga, Senior Operations Manager at Summer and expert on all things student loan contribution. Christina has years of experience helping companies large and small navigate contribution with technology, including leading the student loan benefits program for Empower.
Christina, it seems like contribution is once again taking the employee benefits world by storm. Can you bring readers up to speed on what happened in December?
As part of the federal spending bill signed by President Biden on December 29th, 2022, the Secure 2.0 Act of 2022 became law. This act, originally introduced in the House in May 2021, includes almost 100 provisions intended to help Americans better prepare for retirement.
One of these provisions aims to help individuals who are not currently saving for retirement because they are focused on the more immediate burden of paying back student loans. That’s something we call a double-detriment situation for borrowers. Not only are they unable to defer a part of their salary into their 401(k), where the earlier and more they save, the better, but they may be missing out on matching dollars from their employer. This money, earmarked by employers for this purpose, will sit unused, fueling the current crisis in which millions of Americans are not adequately prepared to maintain the same quality of life once they retire. When relevant provisions take effect in 2024, these financial wellbeing deterrents change for the better!
Fantastic! It sounds like this is some positive news for both student loans and retirement. Do you mind summing up what Secure Act 2.0 means for companies in a sentence or two?
Secure Act 2.0 will allow employers to make tax-favorable matching contributions to employee retirement plans based on the amount of employees’ monthly student loan payments. This is a win-win for employees and employers alike!
Phew, next year is far away and it seems like open enrollment was just yesterday! How should HR leaders be preparing for the Secure 2.0 Act provisions? Are there any steps they can take today?
Yes! We know these changes can be overwhelming, but that’s where your retirement recordkeeper can be a huge help. Some of the provisions don’t take into effect until 2024 or later, so it’s best to start talking with your recordkeeper as soon as possible to understand what these changes will mean for you as an employer.
In the student debt matching provision, there’s a lot to untangle! Which employees are not qualifying for their full retirement match? How do you know which employees have student debt? How do you know what your employees are paying toward student loans? Here’s where working with your recordkeeper, in conjunction with Summer, can help maximize impact while minimizing time and stress.
Summer manages and digitizes the student loan matching benefit from start to finish, from allowing employees to opt-in to verifying and tracking student loan payments, working with you and your recordkeeper to ensure student loan borrower employees receive their matching contribution.
Planning mode = activated. Can all organizations benefit from the new provisions?
All organizations that offer a retirement plan can benefit! And those that offer matching contributions can especially benefit from the student loan payment matching provision.
Switching gears, what does the Secure 2.0 Act unlock for organizations at large and what does it mean for DEI?
SECURE 2.0 is not a cure-all for the retirement (or student debt) crisis, as we know nearly half of Americans working in the private sector do not have access to an employee-sponsored retirement plan and will not reap the benefits of SECURE 2.0. However, for those employers helping their employers plan for the future, the act offers a host of provisions, including expanded eligibility for part-time employees, a federal “Saver’s Match” (Section 103) for lower-income employees, and an increase to catch-up contributions for participants 50 and older.
The student loan matching provision is also a way SECURE 2.0 can help tackle the racial wealth gap. White families are more likely to have a retirement account and on average, have more money saved than Black and Latinx families, for example. And we know that Black adults are more likely to have student debt and owe more, on average, than their white peers. So helping student loan borrowers save for retirement is crucial to DEI initiatives.
SECURE 2.0 is a huge opportunity for HR leaders to support the current and future financial wellbeing of student loan borrower employees. While employees can continue to focus on paying down student debt, you will be able to unlock previously unused (and tax-advantaged) matching funds to jump start retirement savings!
While this all sounds net positive, like many policy changes, HR teams are often left picking up the pieces, unpacking the change for their organizations. Aside from the new operational burdens you mentioned above, are there other student loan policy changes on the horizon that will impact financial wellbeing in the coming quarters? And any advice for getting out ahead of this?
To say that the student loan landscape has changed frequently the past few years would be an understatement. Fortunately for employers, Summer is on top of every policy change and what that means for your employees. On January 10th, 2023, the Department of Education announced changes to Income Driven Repayment (IDR), reducing IDR payments on undergraduate loans to 5% of discretionary income (10% for graduate loans). In addition, more low-income workers will qualify for $0 payments, so that no worker earning 225 percent of the poverty level will have a payment due.
Summer’s comprehensive online solution will take into account all new changes as they are finalized.
Thanks again for taking the time, Christina! Is there anything else you would like to leave readers with?
There are many changes to retirement savings as a result of SECURE 2.0 but Summer is here to help you cut through the noise and empower you to be a financial wellbeing champion for your employees!
Interested in getting out ahead of SECURE 2.0 and learning how our digital solution can help your organization and recordkeeper? Schedule a no-obligation information call here.