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Senate Bill Would Help Workers Build 401(k)s While Repaying Student Loans

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What You Need to Know

  • The bill would allow employers to make “matching” contributions to a 401(k) retirement plan while employees make loan payments.
  • The matching contribution is a voluntary benefit that employers may elect to provide to workers.
  • Workers must certify the amount of student loan repayments made in a plan year to receive the benefit.

Senate Finance Committee Chairman Ron Wyden, D-Ore., reintroduced legislation Thursday that allows employers to make “matching” contributions to a 401(k) retirement plan while their employees make student loan payments.

Under the Retirement Parity for Student Loans Act, recent college graduates who cannot afford to save money above their student loan repayments would no longer have to forgo the employer match.

“Right now, generations of Americans are struggling under the crushing burden of student debt,” Wyden said in a statement. “They are putting off buying a home, having children and saving for retirement to pay down their student loans. As the cost of higher education continues to skyrocket, so does the debt.”

The voluntary benefit that employers may elect to provide to workers applies only to repayment of student loan debt that was incurred by a worker for higher education expenses, according to a summary of the bill.

A worker must certify the amount of student loan repayments that have been made during a plan year to receive the benefit.

The rate of matching for student loans and for salary reduction contributions must be the same, the summary states.

“For example, 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,” according to the summary.

Special rules apply if a worker makes both salary reduction contributions and student loan repayments.

“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 $19,500 for 2021,” the summary states.

The Retirement Parity for Student Loans Act “would give employers the ability to make matching contributions to their employees’ retirement, as the employees simultaneously make their student loan payments,” Wyden said.

Wyden added that while he supports student debt forgiveness, “it’s important to put every option on the table to relieve this burden for millions of Americans.”

He cited research from the Employee Benefit Research Institute that found that households headed by a person age 35 or younger with a college degree and no student loan debt report median defined contribution account balances of $30,000, compared with $15,000 for similar families that have student loan debt.

The bill, first introduced in 2018, is cosponsored by Sens. Maria Cantwell, D-Wash.; Sheldon Whitehouse, D-R.I.; Sherrod Brown, D-Ohio; and Ben Cardin, D-Md.