Millennials represent the largest generation in the American workforce today and two-thirds of them feel they’re not on track with their retirement savings. A recent survey of this age group (ages 23 to 38) cites the high cost of housing as the number one reason for not saving (37%). The next reason, trailing not too far behind housing costs is “supporting family members” at 33% of all responses, then comes “inadequate income” at 26%. Coming in at 21% is student loan debt. The U.S. Federal Reserve released statistics in Q3 of this year, finding that over 44 million Americans are holding over $1.5 trillion in student loan debt. Combine these expenses with the cost of transportation, insurance and discretionary items and there is only so much money left, if any, for retirement savings.
Some millennials view paying off student loan debt as a primary personal goal – they feel more secure working towards being debt-free (and paying more than the required monthly minimum to avoid interest payments) than they do saving for retirement. Other individuals pay the minimum required monthly student loan payment while simultaneously contributing to an employer’s 401(k) plan. This balanced approach may be more appealing, especially if the employer is offering a generous matching formula. The reality is that neither approach is ideal, nor is the stress that likely comes along with it.
A recent trend among employers seeking to attract and retain talent is to offer student loan repayment assistance to their employees. Some programs incentivize employees to pay off their debt by tying those payments to generous matching 401(k) contributions as we mentioned on the blog here. In February, Congress introduced the Employer Participation in Repayment Act of 2019 (H.R.1043) which would allow employers to assist those with student loan debt tax-free at up to $5,250 per employee annually.
I believe we will see this attractive benefit gain popularity and ultimately aid these individuals in realizing a meaningful retirement planning strategy. Keep an eye out for developments on this bill.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advisory services offered through Global Retirement Partners, LLC, a registered investment advisor. Global Retirement Partners, LLC, Frenkel Benefits – an EPIC Company, and LPL Financial are separate and non-affiliated companies.
This information was developed as a general guide to educate plan sponsors but is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements and you should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.
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