Benefits February 26, 2024

Four Sponsors Add Fidelity’s Student Loan Debt Repayment Matching Benefit

A luxury goods company, media company, beauty retailer and media and entertainment company are all employers implementing student loan debt repayment matching this year.  

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Plan sponsors LVMH, News Corp., Sephora and Walt Disney Co. are among the large employers, offering their defined contribution retirement plan participants a student loan debt repayment matching benefit—tapping Fidelity Investments’ student debt workplace program, according to documents viewed by PLANSPONSOR.

The four employers added student loan repayment matching benefits because they have recognized the positive impact of student loan benefits on workers and the considerable influence the benefit can have on their participants’ retirement savings, according to the press release.

Student loan debt is a significant barrier, preventing many U.S. workers from saving for retirement.

“A standard student loan is a 10-year payment plan, but [the repayment] can easily extend into multiple decades,” explains Jesse Moore, senior vice president, head of student debt, at Fidelity Investments. “And that crowds out other ways of leveraging your cashflow.”

Workers with student loan debt have to make “tradeoffs when it comes to emergency savings, as well as retirement savings,” adds Moore. “Unfortunately, what that means is that you have employees that aren’t able to contribute into the retirement plan, particularly early in their career.”

Sponsors, by adding the benefit will “draw those individuals into retirement savings much earlier. Now that [sponsors] are able to actually credit their [participant’s] student debt payments towards their retirement match, they’re able to take advantage of match, actually feel like they’re part of the retirement process savings process, but also start to accumulate savings through their match where historically they wouldn’t be able to participate at all.”
 
The Fidelity release announced the three sponsors that decided to incorporate student debt matching benefits.   

Separately, Fidelity produced a student debt match guide and video, explaining the Disney benefit to eligible participants, which were viewed by PLANSPONSOR.

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The benefit was made possible with the passage of the SECURE 2.0 Act of 2022, which allows employers to use money already allocated for retirement plans to help employees save for retirement while paying down student debt.

“Our demand is only increasing right now,” adds Moore.

Fidelity anticipates offering access to student debt benefits, including programs aimed at student debt retirement, for more than 1.2 million U.S. workers this year, according to the press release.

Currently, Fidelity works with more than 380 plan sponsors to offer a student debt workplace benefit which includes both a direct payment benefit called Student Debt Direct as well as a Student Debt Retirement benefit, says a Fidelity spokesperson.

Fidelity’s spokesperson did not provide details on how many participate in one benefit compared to the other arrangement. 

“At News Corp. we felt the ability to recognize student loan debt as a plan contribution for matching purposes allowed us to address potential inequities in retirement savings between those who carry a large student debt load for themselves or their children, and those who might have more money available to save during their working years,” said Marco Diaz, senior vice president, global head of benefits at News Corp., in the press release.

Using the benefit, when participating employees make a student debt payment, their employer can match a percentage of the payment with a retirement plan contribution, allowing the employee to continue saving for retirement.

Disney Details

Beginning March 1, plan participants of the Disney Savings and Investment Plan may join the student debt 401(k) match program and their student debt payments will count as contributions to the Disney 401(k), according to the joint student debt match guide, explaining the benefit to Disney’s workers. Match eligibility begins after one year of company service.

Disney included additional details, explaining the program:

  • Participant’s federal or private student loans must have been taken out in their name, including loans in their name for a dependent’s education, must be from a U.S.-based loan service provider and used to pay undergraduate of graduate higher education.
  • After one year of service at Disney, eligible employees can earn a company match of up to 2%, and for every $1 contributed to the plan—up to 4% of base pay— Disney will contribute $0.50.

Disney will make end-of-year match payments to the participant’s Disney 401(k) account based on their annual 401(k) contributions and student loan payment history while enrolled in the match program. Match eligibility is subject to plan provisions. If participants already receive the full company match in the 401(k), they will not receive an additional match under the student debt 401(k) match.

Retirement and Student Loan Debt

More than two-thirds (67%) of recent college graduates burdened with student loan debt say it prevents them from saving for retirement, getting married or buying a home, found Fidelity Investments’ 2023 College Savings and Student Debt Study. Additionally, retirement trend data from Fidelity’s student debt tool shows many student loan debt borrowers used the federal payment pause during the pandemic to focus on retirement savings, with 72% of student loan borrowers contributing at least 5% to their 401(k), compared to 63% prior to the payment pause.   

Payments on federal student loans were paused because of the pandemic, but resumed in October, with the interest on federal student loans having started to accrue in September.

Mexican-style chain restaurant Chipotle last month announced it will offer a student loan repayment matching benefit. Financial insurance provider Unum Group also announced it would enhance the student loan repayment benefit it offers company employees, adding flexibility of timing to help employees allocate assets to savings programs and benefits that lead to improved retirement readiness, in 2023.  

The Supreme Court struck down President Biden’s student loan forgiveness plan, rejecting it a 6-3 decision, last year. However, the Biden Administration has forgiven about $138 billion in student loans for nearly 4 million borrowers using existing loan relief programs, and this week, it announced another program estimated to cancel another $1.2 billion in borrowings.

Fidelity started offering its student debt retirement program “to select clients in 2018,” following a private letter ruling from the IRS, explains a Fidelity spokesperson, by email.

“Since the passing of SECURE 2.0 in December of 2022, Fidelity has scaled its offering so interested clients could roll out the benefit on the same day the SECURE 2.0 provision took effect,” adds the spokesperson.

The Disney Savings and Investment Plan held $9.58 billion in retirement assets for 72,170 participants; the NewsCorp. 401(k) Savings Plan held $2.76 billion in retirement assets for 14,353 participants; LVMH Affiliates’ 401(k) Plan, Wines and Spirits held $123 million in retirement assets for 955 participants; and the Sephora Retirement Plan held $437 million in retirement assets for 17,105 participants, as of their most recent filings to the Department of Labor.

Administration February 23, 2024

2024 PS Webinar: SECURE 2.0 Catching Up with Catch-Ups

Plan sponsors, recordkeepers and payroll providers face many challenges when it comes to implementing the SECURE 2.0 provision requiring certain catch-up contributions to be made on a Roth basis.

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While the Internal Revenue Service announced a two-year administrative transition period for plan sponsors to implement Roth catch-up contributions for higher-income employees—a mandatory provision under the SECURE 2.0 Act of 2022—it is important that plan sponsors, recordkeepers and payroll providers are preparing to implement this new feature, as the deadline is not too far off.

Robert Massa, managing director and Houston Operations Retirement Practice Leader at Qualified Plan Advisors, said at Thursday’s PLANSPONSOR webinar “Catching Up with Catch-Ups” that his plan sponsor clients were “elated” about the delayed deadline, but many are now putting it off their radar as they have other responsibilities that are more pressing.

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“What I’ve had to do is prioritize my clients to get [the catch-up requirement] back on their radar screens starting with those who do payroll internally,” Massa said.

Massa said it can take six months just to submit a request to get approval for a project like this. If an employer is just starting this process now, they essentially have one year to implement the Roth provision, which is scheduled to take effect for plan years starting after December 31, 2025.

Massa argued that the bulk of the implementation process needs to come from payroll providers. If a company’s catch-up contributions are currently operating on a pre-tax basis, payroll needs to work with a plan sponsor’s recordkeeper to figure out how it can be switched to a Roth contribution.

“You have to think about the logistics of how all this money will get remitted,” Massa said. “Normally, all money has its own bucket: pre-tax has a bucket, match has a bucket, Roth deferrals have a bucket, after-tax has a bucket. Will you put this catch-up into the Roth bucket [or] will the payroll company want to put it in a new bucket? There’s a lot of things that [payroll providers and recordkeepers] have to iron out together.”

A ‘Revenue Raiser’

Andy Banducci, senior vice president of retirement and compensation policy at the ERISA Industry Committee, explained why Congress originally set the due date for the mandatory provision to take effect after December 31, 2023.

When policymakers were negotiating the SECURE 2.0 package, Banducci said they needed to come up with almost $40 billion in new money in order to make the law’s outlays equal to new revenues. For example, Banducci said the provision making auto-enrollment mandatory for new plans – which takes effect for plan years beginning after December 31, 2024 — was predicted to cost $5 billion over the next ten years, and the Saver’s Match provision – effective after December 31, 2026 — was expected to cost around $10 billion, so therefore, Congress needed to come up with ways to offset those costs.

Banducci said requiring catch-up contributions for higher-income employees to be made on a Roth basis was the biggest revenue raiser of the bill, as almost $17 billion in new revenue is expected from it. Money that would have been put into retirement plans on a tax-deferred basis will instead be saved on a Roth, or after-tax, basis, resulting in more revenue for the IRS now.

“That explains why the date in the bill that was supposed to take effect was [initially] right away [on] December 31, 2023,” Banducci said. “Often those kinds of provisions would get a longer runway, but they needed [money] every year within that 10-year window.”

Members of the ERISA Industry Committee expressed right away that the original deadline was going to be a problem, and Banducci said they were told by their vendors that it would be difficult to implement so quickly. Therefore, in late August 2023, after significant lobbying and conversations with policymakers, the IRS announced the two-year administrative transition period.

Section 603 of SECURE 2.0 requires that catch-ups from participants in 401(k), 403(b) or governmental 457(b) plans earning $145,000 or more be made as Roth contributions.

Banducci said he does not think the limit will be adjusted to try to make up for lost revenues during the delay, but he said the next time a tax package is introduced and Congress needs to come up with revenue raises, it is possible that the limit could be adjusted.

Implementation Challenges

Brigen Winters, principal at Groom Law Group, said he does not think the two-year implementation delay will be extended beyond January 1, 2026, and that employers should take advantage of the delay to work on implementation issues.

“The problem that our clients were having, both sponsors and recordkeepers, is the new compensation limit using FICA earnings that payrolls are not tracking for retirement plan purposes,” Winters said. “The need for payroll to square up with plan administration… was going to be very challenging to implement on the timeframe that was in the original legislation.”

Winters said these challenges were coupled with the fact that a lot of plans do not currently offer a Roth option. He added that he has heard about requests to further delay the provision for governmental and multiemployer plans, as these plans tend to deal with longer processes in implementing any plan changes due to legislative barriers and collective bargaining practices.

The Rothification Trend

Winters added that this mandatory provision indirectly will result in more Roth accounts in plans and potentially more in-plan Roth conversions, which Congress looked at a few years ago as a potential revenue raiser. Massa said this could also trigger more organizations to consider offering back-door Roth conversions as an additional benefit.

Banducci said the idea of “Rothification” is not new, as the House Ways and Means Committee’s Republican staff put out a draft tax reform package in 2014 that had significant elements of Rothification in it.

“The idea of going after tax deferrals or tightening tax incentives around retirement savings is not new,” Banducci said. “[Policymakers] are starting to look at ways [to] generate new revenue without raising individual tax rates and the tax incentives around retirement are one of them, particularly given that they’re deferrals in this case.”

You can watch a recording of the full webinar here.

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