Student loan matching benefit: How SECURE 2.0 now makes it easier to implement

One of the most intriguing provisions of SECURE 2.0 went into effect at the beginning of this year. The student loan matching provision is designed to allow workers to address their student loans while continuing to save for retirement. Studies have demonstrated that student loan repayments can negatively impact how much or even if employees contribute to a 401(k) plan.

Betterment at Work is among the first to offer a commercial product that leverages this provision. The product allows small business employers to match employee student loan payments with a 401(k) contribution.

Edward Gottfried, senior director of product management at Betterment at Work, answered questions about the SECURE 2.0 provision, why employers and employees should care, and how its new product works.

Q. Have employers been able to help employees with debt related to education in the past, and how?

A. A 2019 survey by the Society for Human Resource Management showed about 8% of employers offered student loan repayment assistance as a benefit. There hasn’t been significant improvement since—in a 2023 survey of 1,000 full-time workers, Betterment at Work found that only 11% of employees are receiving support from their employer-sponsored student loan financial assistance or repayment programs. In addition, some employers offered resources to support strategy-setting debt repayment, such as access to financial advisors or financial literacy materials. The same survey found 17% of employees have access to such resources as a part of their benefits package. While it’s been encouraging to see employers start to offer these solutions in the past, SECURE 2.0’s provisions significantly broaden the ability of employers to help employees pay down education-related debt.

Q. How does student loan matching work under SECURE 2.0?

A. Under SECURE 2.0, qualified student loan repayments may now count as elective deferrals for 401(k) matching contributions from employers. This means that employees who make student loan payments can have those payments matched by their employer into their 401(k) plan. This provision is designed to provide support for employees managing student loan debt who are eager to simultaneously contribute to their retirement savings.

Q. Why is this an important benefit for employees who may be balancing student loan repayments and saving for retirement?

Q. Many employees struggle to juggle competing financial responsibilities — including paying off student loans while also saving for retirement. Our survey found that 64% of borrowers said their student debt has impacted their ability to save for retirement. Therefore, by allowing student loan repayments to count as elective deferrals for 401(k) matching contributions, workers can address their immediate financial needs while also building long-term savings for retirement. This benefit offers flexibility and support to employees as they navigate their financial wellness journey.

Q. Why is this an important tool for employers from a recruitment, retention, and engagement perspective?

A. Our survey found that nearly one in four (21%) of employees would be enticed to leave their current employer for a new job with a prospective employer if they offered a student loan/401(k) matching program. Specifically, 71% of Gen Z believes that their employers should play a role in helping employees pay off their student loan debt. A benefit like student loan repayment assistance can be a crucial tool for employers aiming to attract and retain talent from the younger generation, demonstrating a commitment to addressing their financial needs and priorities. Offering a 401(k) match on student loan payments takes it a step further. It is an investment that employers can make that will have a meaningful impact on creating a positive work environment where employees feel supported and valued.

Related: SECURE 2.0 rolls out new student debt (and education) benefits in 2024

Q. What makes Betterment’s new student loan matching tool unique?

A. Our new student loan matching tool is the first commercial product that allows small business employers to automatically match employee student loan payments with a 401(k) contribution. Employees with access to Betterment’s 401(k) platform can record qualified loan payments within the platform. Employers can then match these payments with a contribution to the employee’s 401(k). To simplify administration of this new match, employers can choose to make the match annually even if their other 401(k) match happens on a per-payroll basis.

Q. What do employers need to think about when considering implementing a student-loan matching tool?

A. When implementing a student loan matching tool, employers should assess the following points to determine if it is the right fit for their organization:

1. Employee Needs: Assess the financial needs of your workforce, including the prevalence of student loan debt among employees and their interest in such a benefit — especially if Gen Zers and millennials make up a large part of their workforce.
2. Plan Design: Determine the specific parameters of the 401(k) inclusive of the student loan matching program, such as the matching rate, eligibility criteria, and any other relevant details.
3. Budget: Review the costs associated with implementing and maintaining a student loan matching program, including matching contributions, operational costs, and any additional administrative expenses.
4. Communication: Develop an internal communication strategy to effectively educate employees about the new benefit and encourage participation.