Retirement saving help for student loan borrowers

It’s a common lament among college students and recent graduates: How can I pay off my student loans while at the same time socking money away for retirement? It seems so out of reach.

But proposed provisions in the so-called Secure Act 2.0 aim to alleviate those financial stressors for millions of student loan borrowers.

This financial lifeline took one big step closer toward reality when the House of Representatives in late March passed the Secure Act with overwhelming bipartisan support. The legislation, among other things, tweaks retirement savings rules that were included in a law passed by then-President Donald Trump in 2019.

The 2.0 version, as it’s been dubbed, now moves to the Senate, which has a proposal similar to the House bill.

It’s expected that a final version of the legislation will be approved soon before being sent to President Joe Biden for his signature.

While the House legislation will help people save for retirement on many fronts, several provisions stand out for younger adults staring at burdensome student loan repayments.

The most significant provision would allow employers to match student loan repayment contributions made by workers up to certain annual limits, especially helping those with a lot of student debt who’ve been unable to contribute much if anything to their retirement savings plan.

Think of the employer match as “free money,” essentially, said Ted Rossman, senior industry analyst at BankRate. com. “While it may not sound like much at first, this can really add up over time for a younger worker with a long time horizon.”

Here’s an example: With the Secure Act 2.0, a borrower who receives matching 401(k) contributions on a $350 monthly student loan payment for 10 years, assuming an 8% return, could accumulate $450,000 on those employer contributions alone by the time they retire, even if they never contributed a single cent themselves, said Laurel Taylor, founder and chief executive of FutureFuel.io, an online service that helps student loan borrowers. Over this time period, the beauty of compound interest is also working in favor of savers.

Importantly, the House proposal features an automatic enrollment provision for eligible employees in a company’s retirement plan, such as a 401(k), which I’ve always favored.

In other words, workers would have to “opt out” if they didn’t want to participate.

There is plenty of evidence that automatic 401(k) enrollment boosts participation. In a 2019 survey, the Plan Sponsor Council found that 62% of 401(k)-type retirement plans use auto enrollment.

That same survey found that

88% of employers reported 10% or fewer participants dropped out of an auto-enrollment plan.

In addition, a study by Ramsey Solutions — affiliated with financial guru Dave Ramsey — ranked student loan repayment assistance as the second-highest employee benefit offering that companies are considering implementing over the next few years.

Another significant provision in the Secure Act for younger workers, especially those early in a career, is greater access to Roth retirement savings plans.

In addition, the House bill would make part-time workers — again jobs held by many teens and young adults— eligible to contribute to a 401(k) within two years of employment, instead of the previous three.

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