How Employers Can Help Free Employees from Student Debt

Gen Z is worried about money. Nearly four in 10 employees between the ages of 18 and 24 cite financial security as their biggest stressor, according to a new survey.

In response, many companies have begun crafting "financial wellness" programs to help the newest entrants to their workforce balance spending, saving, and paying off debt in the midst of rising prices.

Employers will soon have a new tool to add to these programs, thanks to a new federal law called the Secure 2.0 Act. The measure will allow employers to match student loan payments made by their employees with tax-advantaged contributions into their retirement accounts starting in 2024.

Employers should seriously consider taking advantage. Helping employees with their student loan payments is an effective way to attract and retain talent in a stressful work environment.

People with student debt face some difficult budgetary math. Many understandably hold off on putting money in retirement plans in favor of paying down their student loan balances.

But that means they forego the matching contributions offered by many companies in their savings plans. About one-third of eligible employees are currently missing out on this free money for their retirement.

Retirement may seem far off, especially for younger workers. But time can be a younger worker's best friend, thanks to the miracle of compounding returns. Someone who begins saving toward their retirement at the age of 22 can build up a $1 million nest egg by retirement age by setting aside just $4,500 a year. And that assumes a modest annual return of 4% after inflation.

If their employer offers a matching contribution, that yearly contribution could drop by half -- to just $2,200.

Employees who delay savings because they're dealing with student loans will find it hard to catch up. To meet that same retirement goal of $1 million, a worker who starts saving at age 30 will need to save twice as much. A worker who starts in their 40s will have to quadruple their contribution.

Around that same time, most people will be working toward other major financial milestones, such as buying a home or starting a family. Those additional financial obligations can make saving for a comfortable retirement feel even more out of reach.

Secure 2.0 will allow employees to get that all-important jump start on their retirement savings even as they pay off their student loans.

Our employees at Abbott have certainly found as much. We've been operating a similar program since 2018, with the blessing of the IRS. Under our Freedom 2 Save initiative, employees who put 2% of their annual salary toward student loan payments receive a 5% match in their 401(k). Some 2,200 employees have enrolled. Our goal is to reach $10 million in matching contributions to participants' retirement accounts by the end of the decade.

Thanks to Secure 2.0, any company can now implement a program like ours. According to a survey by the Employee Benefit Research Institute, nearly three-quarters of employers offer or plan to offer student loan assistance.

It's smart business. The job market is still incredibly tight, with nearly two job openings for each unemployed worker. The average Gen Zer carries $20,900 in student debt, 13% more than the average millennial. And across the board, a strong majority of workers -- 80% -- rank debt as their top stressor, with just over half selecting student loans as the biggest strain.

Capitalizing on the new flexibilities provided by Secure 2.0 can help employers stand out in the competition for talent.

Research shows that employees who agree strongly that their company cares about their well-being are 1.5 times more likely to stay with that employer. There's no better way for an employer to demonstrate that care than to help their employees achieve financial security.

Mary Moreland is Executive Vice President, Human Resources, at Abbott. (www.abbott.com)