Many early-career workers saddled with college debt forgo contributing to their 401(k)s until they’ve made a dent in their loans, and one company is seeing a big opportunity.
Student loan provider CommonBond announced a service that lets plan sponsors make 401(k) contributions on behalf of employees who are paying down loans. That service, Retirement Contribution, is provided by the firm’s CommonBond for Business unit.
What makes the service unique is that it can verify for employers that their workers are making student loan payments and are thus eligible for 401(k) contributions under such an arrangement. That product is customizable and is “easily added to existing employer benefit programs and retirement record keeper” services, the company said in an announcement Monday.
CommonBond currently has about six companies that are either using Retirement Contribution or are in the process of adding it, said Tara Fung, the firm’s chief commercial officer. The new service went live Jan. 1, although Commonbond is just now making the formal marketing push.
“For a while, plan sponsors have been treating [retirement savings and student loans] as utterly distinct, because they didn’t know they could do otherwise,” Ms. Fung said.
Employees that want to participate must opt in, giving CommonBond permission to verify their student loans and payments, she said. But by verifying that information, the company takes the burden from clients’ human resources departments, Ms. Fung said.
“We built tech that allows us to validate that someone has student loans and allows them to sync their student loans with our platform,” she said.
CommonBond bills itself as one of the first businesses to offer its own employees a student loan benefit plan at work, having done so since 2015.
Numerous companies have added perks for recent grads over the past several years. In 2018, a private letter ruling from the IRS indicated that the regulator was open to arrangements in which employers treat student loan payments like 401(k) contributions in order to make matching contributions to retirement plans for their workers. However, that guidance was specific to one employer, Abbott Laboratories, and its plan setup. Late last year, the IRS wrote that it plans to issue broader guidance on such arrangements.
“That was a really huge ruling for us as a company,” Ms. Fung said. It meant that “student loans were now being used to unlock other [employer] benefits in a way that is really compelling.”
Across the U.S., student loan debt totals about $1.5 trillion, and surveys show that workers want help dealing with it. About two-thirds of people age 21 to 27 said they wanted their employers to help them pay their loans, while just 27% said it was the company’s responsibility to help them save for retirement, according to a recent report by Hearts & Wallets.
Fidelity Investments, which provides student-debt services for plan sponsors, has said companies that give assistance on student loans can see a 75% reduction in turnover.