The American Retirement Association has offered its support
for newly introduced legislation that seeks to help employees save for
retirement as they repay their student loans.
The Retirement Parity for Student Loans Act introduced April
29 by Senate Finance Committee Chairman Ron Wyden (D-OR) would permit 401(k),
403(b), SIMPLE and governmental 457(b) retirement plans to make matching
contributions to workers as if their student loan payments were salary
reduction contributions. As such, recent graduates who cannot afford to save
money above their student loan repayments would no longer have to forego the
employer match under the proposal.
“The ARA thanks Chairman Wyden for championing this
important issue and urges Congress to promptly enact the Retirement Parity for
Student Loans Act into law,” the organization notes in its letter of support.
The ARA says it is especially pleased to see new language in
the latest version of the bill that addresses the impact this new retirement
plan design feature could have with the nondiscrimination average deferral
percentage (ADP) test that applies to 401(k) plans. “Many employers are
interested in this new benefit that gives employees matching contributions into
the 401(k) plan based on the amount an employee is paying in student loans.
Small businesses will now not have to worry that this benefit puts their
retirement plan testing at risk,” the organization states.
With student loan debt increasing rapidly over the past two
decades, this issue has been receiving increasing attention on Capitol Hill and
within the retirement community, particularly after a 2018 IRS private letter
ruling that permitted a 401(k) plan to be amended to include a student loan
benefit program. That ruling allowed an amendment to a plan providing that
student loan repayment (SLR) nonelective contributions under the program would
not violate the “contingent benefit” prohibition.
According to data by the Employee Benefit Research
Institute, the percentage of families with student loan debt grew from 10.5% in
1992 to 22.3% in 2016. For families with heads younger than age 35, the
percentage with student loan debt approaches one half (45%) of those households
and the percentage is over a third for those with a family head ages 35 to 44.
EBRI’s data also shows that households headed by a person
age 35 or younger with a college degree and no student loan debt report median
DC account balances of $30,000—compared to $15,000 for similar families that
have student loan debt.
“Right now, generations of Americans are struggling under
the crushing burden of student debt. They are putting off buying a home, having
children and saving for retirement to pay down their student loans,” Wyden
stated in announcing the legislation, further noting that it’s important to put
every option on the table to relieve this burden.
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