Michigan State RepresentativeMike McFall, a Democrat, has put forward Michigan House Bill 5461, MI Secure Retirement, which would create a state-facilitated automatic individual retirement account program, MI Secure Retirement, for private-sector workers in the statewho do not have access to employer-sponsored retirement savings plans.
McFall introduced the bill on February 21. If passed, it would enable employees to save for retirement even in the absence of an employer-sponsored program. Almost 42% of Michigan’s private sector workforce aged 18 to 64 did not have access to workplace retirement savings plans, as of 2020, according to an announcement from the legislator.
“We continue to see an aging workforce that is not financially secure enough to retire,” McFall said in a statement. “This program will help small businesses retain employees, allow for more Michiganders to have additional financial autonomy in retirement, and save tax dollars because fewer people will need to take advantage of social safety net programs as they age.”
Automated savings programs, also known as “secure choice” or “work and save” programs, already exist in 15 states. These initiatives automatically enroll workers who do not have retirement benefits into individual retirement accounts, setting aside a portion of their wages per pay period. The programs are often administered by firms such as Vestwell, Ascensus and Ubiquity Retirement + Savings.
Participants would be able to determine their contribution amounts and opt out at their discretion. Additionally, they could access their savings without penalties in case of financial emergencies or setbacks, and they would be able to carry the IRA with them to different jobs. McFall stated that the program will come at no cost to employers.
In November 2023, the cumulative account assets in automated savings programs exceeded $1 billion across seven state initiatives. The states included, from largest asset size, are Oregon, Illinois, California, Connecticut, Maryland and Colorado, according to the Pew Research Center. The momentum behind these efforts has been steadily growing since the 2017 launch of with Oregon’s pilot program, OregonSaves, which helps private sector workers save for retirement.
“Millions of workers across the country—and 1.5 million in Michigan—are struggling to save enough for retirement simply because they lack access to workplace savings,” said John Scott, director of the Pew Charitable Trusts’ retirement savings project, in a statement. “MI Secure Retirement is an innovative and practical solution, with no costs for employers, to address the challenges workers face in preparing for retirement in this economy.”
The bill was referred to the Michigan House of Representatives’ Committee on Labor for review; it would need to pass both the house and the Michigan Senate to become law.
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.
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.
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.
