Did you know there’s a way to make your job openings more compelling to a pool of 43.5 million Americans? That’s how many Americans have student loan debt. This student loan debt totals over $1.7 trillion. The average borrower owes $37,787.
Your small business, with the help of tax credits, can match your employees’ student loan payments to their retirement plan by leveraging the SECURE Act 2.0.
The Problem That SECURE 2.0 Solves
Before the SECURE 2.0 ACT, employers could only make matching contributions to a defined contribution plan based on an employee’s contributions to their defined contribution retirement plan accounts. But, understandably, employees with student loan debt were not contributing an optimal amount to their retirement plan. This is because these employees felt pushed to use their salary to first pay down their student loans.
This caused too many Americans to lose out on employer-matching contributions. This reduced their retirement savings. Frighteningly, 50% of women and 47% of men between the ages of 55 and 66 have no retirement savings, according to the U.S. Census Bureau.
Under the SECURE 2.0 Act, starting in 2024, employers may make matching contributions to retirement plans governed by Code Section 401(k), 403(b), 457(b) government plans, and SIMPLE-IRA plans based on the employee’s qualified student loan payments. Employees no longer have to choose between paying off student loan debt and investing in their retirement.
Use the SECURE 2.0 Act as a Recruitment Tool
The Setting Every Community Up for Retirement Enhancement (SECURE) Act 2.0 is legislation designed to make it easier and more affordable for small businesses to offer employer-sponsored retirement plans.
However, there’s also a way to leverage the SECURE 2.0 Act to help your employees who have student loan debt. What’s more, one of the key benefits of the SECURE Act 2.0 is the increased tax credits it offers to small businesses to encourage plan sponsorship.
When your employees make a qualified student loan payment, your business can make a matching contribution to the employee’s 401(k) plan based on the amount of the loan payment. By participating in this aspect of SECURE 2.0, suddenly your job openings become more attractive to the 43.5 million Americans who are weighed down with student loan debt.
Be sure to prominently list this benefit in your job postings. Put yourself in the shoes of a job seeker who is weighed down with the average student loan debt of nearly $38,000. One job posting lists a 401(k) match, the other lists that they will make a matching retirement contribution for their student loan payments. Your student loan debt makes you anxious and keeps you awake at night. Which job listing would more likely appeal to you?
This benefit of SECURE 2.0 enables employees to continue paying down student loans while taking advantage of an employer’s matching contributions towards their retirement plan. No longer do employees have to choose between saving for retirement and paying off their student loans. Remember, employers get a tax benefit for their matching contributions.
Market Your Student Loan Payment Matching Program
Once you install a student loan payment matching program in accordance with SECURE 2.0, it’s time to promote this incredible benefit. In addition to featuring this benefit in your job postings, encourage existing employees to talk about it as part of your employee referral program.
Your employees may have friends who are qualified to work for your business and are similarly buried in student loan debt. The next time these friends commiserate with each other about their crushing student loan debt, your employee will have something new and exciting to bring up.
“Actually, my company is giving me money in my retirement plan based on how much I pay back in student loans. So every student loan payment I make also helps pad my retirement fund.”
This conversation combined with an employee referral bonus can supercharge your recruiting efforts.
Explain to Candidates and Employees How They Can Balance Paying Student Loans With Investing for Retirement
Educating your team and potential hires will give you an edge with recruiting and retention. Explain that SECURE 2.0 is a law designed to help workers whose student loan debt would lock them out from investing enough in their retirement.
Remind employees that by investing early in their 401(k), they’re maximizing the amazing effects of compound interest on their portfolio. Albert Einstein said, “The most powerful force in the Universe is compound interest.” Einstein went on to say, “Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.” And at your company, employees don’t have to choose between earning compound interest on their retirement funds or paying off student loans.
When thinking about how to prioritize your money, consider the interest rate on debt you pay down as a return on your investment. Your student loans cost you your interest rate, perhaps 5%. While past performance is not a guarantee of future results, the S&P 500 has posted an annualized return of 10.34% from 1926 to 2023. So you could be missing out big money by ignoring retirement investing completely in order to pay off student loans faster.
The key is to not miss student loan payments or incur penalties.
SECURE 2.0 Can Also Help With Employee Retention
A 2023 survey conducted by Georgetown University, in partnership with Bank of America, revealed that 68% of employees view their work mainly as a way to make a living but not as a major part of their identity or personal fulfillment. Nearly half (46%) say they are looking to change jobs in the next year.
In addition, fewer than one in three young adults (30%) could say they were very satisfied with their benefits package. Marketing your commitment to helping employees with student loan payments also save for retirement shows you care. This can increase engagement and retention.
This same survey uncovered that 46% of workers ages 24 to 35 find it difficult to manage the stress of work and other things going on in their life. In addition,15% strongly agree that they’re finding stress management very difficult. Reducing financial stress for your employees can make them more productive and keep them with your organization longer because they feel valued.
Over 100,000 small businesses partner with Asure for payroll and HR solutions. Asure’s 401(k) plan aligns with the SECURE 2.0 Act. Asure’s experts can help you maximize the tax credits offered by this legislation.
The tax credits significantly reduce the cost of starting a new retirement plan! Our comprehensive, easy-to-use retirement plan solution makes it easier for small businesses to offer retirement plans. This helps you compete alongside bigger companies for the best talent.