sync a company’s 401(k) program with college loan bills. In March, Student Loan Genius rolled out a feature allowing employees who make a monthly student loan payment to get a matching employer contribution to their 401(k). “Not only are we helping the student loan problem, we’re helping people save as well,” says Aguilar.
The money goes further since 401(k) contributions aren’t taxed until the funds are withdrawn, whereas matches for the employee’s monthly loan payment are taxed upfront. Ultimately, it’s up to employers to decide how to structure the benefit—to encourage retirement planning, or student loan payments, or both. Aguilar is also supporting a bill, sponsored by both Republicans and Democrats in Congress, that would allow employer matches to student loan payments to be tax-exempt.
Companies in Student Loan Genius’s 401(k) benefit program will need to navigate the knotty rules the federal government imposes on retirement plans, says Marcia Wagner, managing director of the Wagner Law Group in Boston. So-called nondiscrimination tests prevent highly paid employees from getting too much extra benefit out of 401(k) plans compared with lower-paid workers. Student Loan Genius says such rules aren’t a problem, because those with student loans tend to be closer to the bottom of the pay scale.
Alicia Munnell, a Boston College professor who’s the director of the Center for Retirement Research, says linking student loan payments and 401(k) contributions is a “nice idea” whose appeal may be limited. “If every company offered this type of benefit, it would help debt-laden college graduates get an earlier start on retirement saving,” she says. “But every company won’t.” The best way to help young people save for retirement would be to improve how 401(k) plans are designed, she says, by adding features (which workers can opt out of ) that automatically enroll them and raise the contribution rate over time.