We want help with college loans, not 401(k)s, workers say

Young workers have a message for their employers: They want help paying down their crushing student loan debt, rather than contributions to 401(k) accounts that they won’t access for decades.

Two-thirds of workers age 21 to 27 said their companies should help them pay down student loans, while just over a quarter, 27%, said employers should help workers save for retirement, according to a report Wednesday from consumer research firm Hearts & Wallets. That sentiment isn’t much different across age groups – nearly 40% of all workers said that employers should help with student loan payments, while just 25% said the same for retirement plan contributions. Moreover, people who have low or no debt agreed with that nearly as much as those with high levels of debt, said Laura Varas, CEO of Hearts & Wallets.

“Retirement plan advisers should be selling plans that have this capability – it’s not going to upset the people who don’t have debt, [and] it’s not going to upset the older people,” Ms. Varas said. “There is widespread understanding that helping people get out from under their student debt is a good thing.”

Retirees feel slightly differently, according to the report. A quarter of people in retirement said student loans should fall into employers’ purviews, and 20% said companies should help workers save for retirement. The Hearts & Wallets report is based on data from ongoing surveys, including a recent survey of 5,400 U.S. households.

On average, college graduates now carry $37,000 in student loans, representing a total of $1.5 trillion in total debt, according to figures from the Department of Education cited by MassMutual. Earlier this month, that company added a student-loan refinancing option through CommonBond for employers to offer their workers.

Numerous surveys in recent years have indicated that college debt is discouraging or totally preventing younger workers from contributing to 401(k)s or other retirement plans.

One recent report by TD Ameritrade found that spending on education is the No. 1 “financial disruptor” in people’s lives, with millennials being the most affected. The financial impacts of education outranked money issues from unemployment, supporting family members, making poor investments, accidents, illness or disabilities, and divorce, according to TD Ameritrade.

That report is based on a survey of more than 1,000 conducted by The Harris Poll last year.

Some companies do offer college debt payments as an employment perk, while others have added educational or assistance services through their defined-contribution plan record keepers.

Fidelity Investments, for example, has options for employers to help pay down student loans for their workers, in part through an “employer contribution and 401(k) blend.”

In 2018, an IRS private letter ruling opened the door for employers to begin helping workers with student loans by providing 401(k) contributions on their behalf if the workers can show that they are making loan payments in lieu of contributing to the retirement plan.

According to Fidelity, employers that provide student loan assistance see a 75% decrease in turnover. About half of workers recently hired by companies that provide such assistance said that the student loan help was a deciding factor in new employees having accepted job offers.

In the recent survey by Hearts & Wallets, the most common statement that respondents agreed with, at 42%, was “I wish I were doing a better job saving.” That is tied to issues caused by student debt, but other economic factors are also at play, according to the firm. One is the impact of state and local taxes for people living in bigger cities, especially because those taxes are no longer deductible at the federal level.

“In high-tax metro areas, as many as one in three households are thinking of moving to reduce state and local taxes,” the Hearts & Wallets report stated. “In Houston, one of the higher-tax cities in Texas, 31% of households agree with the statement ‘I am thinking of moving to reduce state taxes and/or real estate taxes.’”

Over the past several years, workers and investors have been more concerned about their current financial circumstances than their futures one, reflecting a “focus on ‘the now,’” Ms. Varas said.

People have multiple financial goals for their current lives, including building emergency savings, preserving capital and generating current income, she said. That is true even among people with at least $500,000 in investible assets, 83% of whom said they had multiple financial goals, she said.

For advisers, that means “at the highest level making sure you’re not a one-hit wonder that plays the retirement song over and over,” Ms. Varas said.