Student Loan 401(k) Matching: A Case Study

Rachel Weker, senior retirement strategist for retiremet plan services at T. Rowe Price Group Inc., says discussions about employer 401(k) matching student loan payments started as early as 2018.

“We started to realize that people’s broader financial lives directly impact their ability to be successful in retirement, and student debt was the piece that was increasingly coming to the fore,” she says.

Then, of course, the COVID-19 pandemic hit, forcing other areas onto the front burner, including emergency saving needs. As of this year, however, the SECURE 2.0 Act allows employers to match an employee’s student loan repayment with a contribution to that employee’s retirement account.

“SECURE 2.0 was really instrumental in focusing employers’ attention on the issue and provided a guidepost as to how they might provide more financial support to address those payments,” Weker says.

As a case in point, engineering consultancy Kimley-Horn and Associates Inc., which employes about 8,000 people, is now offering a 401(k) match based on student loan payments through a program run by SoFi at Work, a financial well-being and education benefits provider, and T. Rowe Price, the recordkeeper. Qualifying employees who make student loan repayments and elective deferrals equivalent of up to 4% of their salary plus bonus are entitled to a company contribution of up to 8% into their 401(k) account. The loan payments can account for all or a portion of the employee contribution.

Kimberly Plessinger, Kimley-Horn’s compensation and benefits manager, says the key reason the firm pursued the benefit was, in a word, flexibility.

“We’re giving our employees more choice,” she says. “Last year, your only choice if you wanted [the employer match] was to put that 4% in. … For that individual that says, ‘I would love to free up some of that compensation to redirect it to pay down that student debt faster,’ we’re really excited to be able to give them that type of flexibility while still getting a pretty phenomenal retirement plan contribution into their 401(k).”

Plessinger says Kimley-Horn, headquartered in Raleigh, North Carolina, had already been exploring the offering before the pandemic. But the firm could not get traction based on the existing IRS private letter ruling. The firm continued to consider its possibilities, however, aiming to offer that flexibility element and a “fantastic” recruiting tool. The firm, she says, is often on college campuses seeking talent in civil engineering, so the passage of SECURE 2.0 and the opportunity to help employees save while repaying college loans drew attention.

“Once we knew it was coming, we had all the mechanisms and thought processes in place to say, ‘Yes, you can put Kimley-Horn down as one of those first plans that wants to roll this out,’” she says.

While the firm had not surveyed employees directly on the offering, it had data from a bonus program that offered payments toward a benefit of the employees’ choosing. Paying down student loans, along with things like travel and child care, frequently cropped up among the five most-chosen options.

Testing the Water

Rowe’s Weker expects more such relationships to emerge in 2024, both from SECURE 2.0 and from the resumption of student loan payments in September 2023 after a pause during the pandemic.

“I think there’s recognition among employers of the financial strain that some of those employees are now feeling now that federal student loan payments have restarted,” she says. “We have definitely seen an increase in the volume of client conversations, and I would expect that to translate into adopting more of these provisions in ’24.”

The offering is definitely still in its early days. In a survey of 2,128 plan sponsors done in the second half of 2023, only 1.2% of participants reported plans to offer employees a 401(k) student loan matching program, according to the recent DC Plan Benchmarking Report from PLANSPONSOR, which, like PLANADVISER, is owned by ISS STOXX. But when asked about offering tuition reimbursement or some other kind of student loan assistance, responses jumped to 54.2%.

Separate research confirms that student debt is a major factor for many people’s financial lives. Studocu, a study and exam preparation firm, noted in recent research that student loan debt outpaced all other kinds of consumer debt in the U.S. in 2023 at about $1.8 trillion, as measured by the Federal Reserve Bank of St. Louis. That was followed by auto loans ($1.4 trillion), credit cards and other revolving credit ($1.1 trillion) and personal loans ($400 billion).

Rowe’s Weker also notes that research shows student debt disproportionally affects women and underrepresented groups. This finding, she says, can guide plan advisers and sponsors in terms of targeting the program to the needs of existing employees or for the purposes of recruiting.

“You measure the success not by looking at a percentage of all of your employees who are using it, but maybe those who are most impacted,” she says.

Adviser’s Role

Rowe’s Weker says her firm had partnered with SoFi to offer broad financial education and debt management tools for clients. The student loan matching program was another area of partnership Weker says can be customized based on guidance from the plan sponsor—or its adviser. But education and information, she notes, will be key for the program to gain traction.

One of the main concerns, Weker says, is trepidation from plan fiduciaries about how the student loan payments will be verified. Right now, if a program relies on self-certification, that may give some advisers and sponsors pause in terms of liability for scamming or simple human error.

Kimley-Horn uses a student loan verification system run by SoFi at Work, with T. Rowe Price delivering the matching contributions. To verify the loan payments, SoFi partners with financial services firms and recordkeepers, while the employer determines employee eligibility based on student loan debt balances. SoFi also offers verification as a separate service available to employers.

Kimley-Horn’s Plessinger also notes that communication of the benefit to employees is key for uptake; the company is well aware that the program may have very low adoption if it is not explained well and more than once. The firm teased the program before it went live, discussed it in a company town hall and is following up with emails and intranet postings.

“There’s been a lot of buzz since we rolled it out,” she says. “But I think this program requires overcommunication. It’s complicated … so we’re taking the approach of being overcommunicators to make sure they are taking full advantage and not leaving a match on the table.”