401(k) matches for student loan debt gain momentum

A newly introduced job perk allows workers to pay off their student loans and save for retirement at the same time—and it's gaining momentum.

This benefit is possible thanks to the Secure 2.0 Act, a recent piece of legislation that introduced sweeping changes to encourage Americans to save for retirement.

Right now, many graduates in full-time employment prioritize paying down their debt as quickly as possible, but this is often at the expense of setting money aside for a pension.

This is worrying economists, who argue that it's important to start saving into a 401(k) as early as possible so it has time to grow and benefit from compound interest.

The Secure 2.0 Act goes some way to striking a compromise.

That's because the percentage of salary that's allocated to student loans can be matched by employers—with the company's contribution making its way into a retirement plan.

According to Bloomberg, more than 100 companies who offer 401(k)s through Fidelity Investments are now rolling out this option to their employees.

However, that's still a drop in the bucket, considering the asset manager has approximately 30,000 clients.

One of the beneficiaries is James Bryant, who is employed by Verizon. If he spends up to 6% of his salary on paying down his student loan, Verizon will then put an additional 6% of his salary into a 401(k) on his behalf.

"There have been times I didn't take full advantage of the match," he said. "My parents probably didn’t save the way they should’ve throughout their lives, and I worry I’m kind of repeating that same cycle."

While this is better than nothing, even Fidelity Investments recommends that Americans should be aiming to save 15% of their annual income for retirement.

Still early days

It's ultimately up to employers to decide whether to offer this perk to their workforce—and given this measure remains relatively new, adoption will probably pick up in the months to come.

But there are no guarantees, with research by the Plan Sponsor Council of America suggesting that 64% of businesses won't offer 401(k) matches because it'll cost too much.

And anecdotal evidence from companies that have been ahead of the curve on this suggests not all employees will sign up.

Abbott Laboratories began offering a policy similar to Verizon's in 2018, and only fewer than 5% of staff enrolled. But those who did were 19% more likely to stick with the company.

Another factor that could influence the pick-up of 401(k) matches is the progress that President Joe Biden makes with his latest proposal for forgiving student loans.

Graduates whose outstanding balance now exceeds their initial loan because of interest would see up to $20,000 wiped out from their balances—rising to all interest for individuals who currently earn less than $120,000 annually.

Others who would be eligible include those who have been repaying student debt for over 20 years, people in financial hardship, and anyone who is yet to apply for existing forgiveness programs.