Senate Finance Committee Ranking Member Ron Wyden, D-Ore., introduced legislation Tuesday to allow employers to make “matching” contributions to 401(k), 403(b) and SIMPLE retirement plans while employees continue to pay their student loans.
The Retirement Parity for Student Loans Act would enable employers to voluntary allow recent higher-education graduates to pay their student loans while receiving employer matching retirement plan contributions. Employers would attribute the student loan payments as salary reduction contributions made to the retirement plan.
A description of the bill states that the rate of matching for student loans and for salary reduction contributions must be the same.
For instance, if a 401(k) plan provides a 100% matching contribution on the first 5% of salary reduction contributions made by a worker, then a 100% matching contribution must be made for student loan repayments equal to 5% of the worker’s pay.
“Special rules apply if a worker makes both salary reduction contributions and student loan repayments,” the bill descriptor states. “Under those rules, student loan repayments are only taken into account to the extent that the worker has not made the maximum annual contribution to the retirement plan — for example, the annual maximum contribution limit per worker is generally $19,000 for 2019.”
Wyden said in introducing the bill that “millions of new college grads are buried under tens of thousands of dollars in student loan debt. Paying down student loans shouldn’t mean employees lose out on the opportunity to save for the future. Tax incentives for retirement savings must be designed to help workers build a nest egg, and that’s exactly what my legislation does.”
Wyden cited Employee Benefit Research Institute data showing that households headed by a person 35 or younger with a college degree and no student loan debt reported median defined contribution account balances of $20,000 — compared with $13,000 for similar families with student loan debt.
Wyden said he introduced his bill in preparation for next year when the 116th Congress is expected to have “broader conversations” on how to improve retirement policies.
— Check out House, Senate Votes on Retirement Bills Anticipated by Industry Officials on ThinkAdvisor.