SECURE 2.0: What it means for employers, benefits brokers and plan advisors
The pending legislation, which is expected to become law by the end of 2022, is poised to revolutionize workplace retirement savings. Here's how to plan for a successful rollout.
The most effective employee benefits break through across every workforce demographic — and financial wellness perks are no exception.
But even employer-sponsored retirement plans, the most common financial wellness benefit, miss the mark with a key employee population: workers with student loan debt.
Student debt sidelines a quarter of the 30 million Americans who have access to a retirement savings plan but don’t contribute to it. And even if they are saving, they’re still falling behind: at age 30, college grads with student debt have half the retirement savings of those without student debt — by which point catching up is all but impossible.
Benefit adoption isn’t the only business objective that suffers when indebted employees don’t save for retirement. Women and people of color are most likely to have unmanageable amounts of student debt and least likely to have adequate retirement savings, leading to low engagement and a less inclusive workplace. And as the generation with the most student loan borrowers and the highest churn rate, failure to engage millennials with retirement benefits contributes to rock-bottom retention.
But employers, benefits brokers, and plan advisors are in luck. The SECURE Act 2.0 is poised to revolutionize workplace retirement savings — and in turn, equip stakeholders with a new way to break through to the two-thirds of college-educated Americans who carry student loan debt.
The SECURE Act 2.0, retirement savings, and student debt
The SECURE Act 2.0 — which insiders expect to become law by the end of 2022 — includes a provision that will allow employers to match the amount an employee contributes to their student debt payoff as a tax-advantaged contribution to their 401(k) or 403(b) retirement plan.
The positive impacts of this will be significant, plentiful — and phased. In the immediate future, the SECURE Act 2.0 will ease the financial worries of borrowers who struggle to balance student debt repayment and retirement savings, and advance stakeholder objectives by driving new participation and increasing contribution size.
In the years ahead, employers will realize greater savings thanks to improved engagement, retention, and tax incentives, which will translate to expanded business for plan sponsors and benefits brokers.
But what is arguably most notable about the SECURE Act 2.0 is that it offers a long-term, sustainable path to financial wellbeing and security — whereas other official measures taken to date to help student loan borrowers offer only short-term relief. The most recent example of this is President Biden’s plan for widespread student loan forgiveness: while an exciting step forward, the plan only forgives a fraction of the average borrower’s outstanding balance, won’t automatically make a borrower’s required monthly payment more affordable, doesn’t offer any help to borrowers entangled in high-interest student debt from private lenders, and doesn’t support future borrowers.
In contrast, the SECURE Act 2.0 will allow millions of borrowers to achieve financial health for decades to come. Retirement-matched student loan payments will give today’s younger — and most indebted — borrowers a fighting chance to build the whopping $3 million in savings they’ll need to retire comfortably. And for borrowers who face a disproportionate debt burden and inequitable access to financial opportunity, the SECURE Act 2.0 creates unprecedented opportunity to build personal — and ultimately generational — wealth through increased capacity for savings, investments, and homeownership.
Planning a successful rollout
After overwhelming bipartisan support in Congress and in a preliminary Senate panel review, the SECURE Act 2.0 will almost certainly become law. Stakeholders can start preparing for its rollout now by considering how they’ll address potential challenges, including:
- Education. Current 401(k) participation data shows that far too many employees don’t believe retirement benefits are accessible to them. Convincing first-time retirement savers to participate will require an intentional engagement strategy and ongoing education, including segmented outreach to new employees and recent graduates.
- Operationalization. Now is the time to plan for the operational and administrative burden of implementing retirement-matched student loan contributions at scale. For many employers, this will require developing an entirely new procedure to efficiently and accurately process employees’ student loan payment records.
- Deepening engagement. Stakeholders should plan thoughtfully to avoid inadvertently encouraging employees with student debt who already participate in an employer-matched savings plan from reducing their overall retirement contribution by switching to a retirement-matched student loan payment program.
- Optimization. Stakeholders should ensure employees have resources to determine how to optimize their repayment strategy to maximize the impact of their employer’s retirement match benefit. Each individual’s next best action will vary depending on their background and goals, and most will need guidance to forge a path forward — especially in the context of events like the end of the federal student loan payment freeze and the introduction of a new income-driven repayment plan.
- Digitization. Digitization will be essential to a seamless program implementation and successful ongoing administration. When choosing a technology partner, stakeholders should look for a solution that automates the exchange of employees’ payment data between loan servicers and recordkeepers, streamlines how employees make extra student loan payments (which could impact how much sponsors contribute), and drives engagement by offering other student loan management services.
The post-SECURE Act 2.0 workplace
The SECURE Act 2.0 will revolutionize financial wellness benefits in the workplace.
The bill will offer immediate relief for the millions of borrowers who struggle to balance the competing priorities of student debt repayment and retirement savings, as well as unlock new opportunities for sustainable, long-term financial health and wealth creation. And in turn, stakeholders who plan ahead to ensure a successful implementation strategy stand to reap the rewards of net-new participation, larger contributions, and deeper engagement.