As retirement providers gear up for the NAPA Summit in San Diego and the Spring events season ramps up, one topic is sure to make a splash on stage: the Secure 2.0 Act and its long list of requirements. While many providers are framing implementation as a cost center, we want to help reframe one of the more talked-about provisions, student loan retirement match, as a revenue driver.
Beginning January 2024, plan sponsors can match participants’ qualifying student loan payments with retirement contributions. This is welcome news for participants, of course, but can also help recordkeepers increase revenue as employers make more contributions to employees’ retirement plans.
Unlike other aspects of the Secure 2.0 Act, the matching contributions provision is optional rather than mandatory. You may think you won’t need to tackle this until much later. But delaying implementation can lead to both significant losses in revenue due to economic factors, as well as potential client churn as plan sponsors turn to competitors who are ready to help provide this benefit to their employee population.
That’s why you should be ready to take advantage of the revenue opportunity Secure 2.0 offers today, not down the road. And the good news is that it isn’t difficult to take action.
Plan participants need help saving for retirement
Secure 2.0 provides a lifeline to workers with student debt at a time of great financial strain. The Wall Street Journal reports that American millennials in their thirties – the demographic with over 54% of total student debt – have accumulated debt at a historic rate over the last three years. Their average credit card balance has increased by nearly 30%, they’re experiencing more credit card delinquency, and they’re falling behind on car payments.
Unfortunately, there’s another factor that will place workers under even more financial pressure in the coming months. The student loan freeze, which has paused federal student loan payments since March 2020, will end at some point in 2023. Once it does and payments resume, workers with federal student loan debt of all ages will need to find, on average, an additional $300-$400 in their monthly budget for their loans.
And contributions to retirement plans will likely be one of the first budget items to fall to the wayside, leading to a lower rate of participation and AUM on your end. Per a recent Voya survey, 81% of Americans with student debt said that debt hindered their ability to save for retirement. (Note: This survey was conducted during the payment freeze, and respondents still felt burdened by their debt.)
Plan sponsors want to help participants save
Borrowers aren’t the only ones facing financial constraints; employers are contending with a challenging macro environment and trimmed HR budgets. At the same time, they’re still combatting high turnover, which is extremely costly for the organization.
This is where retirement and student debt enter the picture. The 2022 MetLife Employee Benefit Trends Study found that retirement benefits are one of the top reasons why employees stay at a company. On top of that, studies show that 86% of workers between the ages of 22 and 33 would stay at a job for five years if offered a student loan repayment benefit. Secure 2.0 can help employers meet their retention goals, even with a smaller budget, as it’s an inexpensive, innovative solution that serves pressing employee needs.
An unmissable opportunity for greater AUM
Secure 2.0 can help you avoid the problem of diminishing AUM due to participant cost-cutting, and grow your AUM instead. The financial burden of paying down student debt no longer has to adversely affect a participant’s ability to save for retirement. In fact, making loan payments actually helps since their plan sponsor will make matching contributions. This enables more employees to save for retirement and increases the amount of money they’re saving on a monthly and, ultimately, annual basis.
Furthermore, most participants will reach the full match since their loan payments will exceed their employer’s match threshold. According to our analyst projections, student loan matching via Secure 2.0 could increase a recordkeeper’s AUM by approximately $4.1 million across roughly 10,000 plan sponsors; that amount could triple to just above $12.4 million in new AUM across 30,000 sponsors over the next five years.* There’s also an opportunity in the fee revenue that plan sponsors will pay to offer and administer the new benefit.
That’s money and long-term brand value that no recordkeeper should leave on the table.
Setting up your Secure 2.0 solution stack
As with any major change, there are systems you need to set up in order to help plan sponsors and participants take advantage of the matching retirement contributions of Secure 2.0. Building an in-house solution can be a resource-intensive and time-consuming option, especially with a long list of other Secure 2.0 provisions to implement, many of which are already in your wheelhouse.
That’s where digital solutions come into play. For example, at Summer we’ve created a turnkey solution that digitizes employee enrollment and verification and sends you all the relevant data securely. You can implement the solution quickly, which gives you an advantage with plan sponsors as you can help them offer the benefit as early as possible in 2024. And our experts are available to provide hands-off support to participants, plan sponsors, as well as your team.
By using Summer, you can also offer plan sponsors access to other student loan benefits – which participants crave. Our student loan optimization tools can help participants save money on their loan payments and get closer to being debt-free.
Get a head start on Secure 2.0 today. Schedule a no-obligation ROI analysis or exploratory with one of our specialists to learn exactly how Summer’s technology can work for you and your plan sponsors.
And if you’re heading to NAPA in San Diego, we look forward to seeing you there! Get in touch to book time with our team.
* Projections are shared as an example only