New Bill Would Make Matching Pension Contributions with Student Loan Repayments

Senate Democrats’ new proposition could benefit pension contribution rates around the country.

Democratic senators last week introduced legislation permitting employers to make matching contributions to workers’ retirement plans as if their student loan payments were salary reduction contributions, treating them as elective deferrals for purposes of employer matching contributions.

“The bill helps workers who cannot afford to both save for retirement and pay off their student loan debt,” a summary on the legislation reads. “Under the bill, workers in this situation would continue to make their student loan payments, but they would also receive employer matching contributions into their retirement plan as if those student loan payments were salary deduction contributions in to the retirement plan.

“This allows these workers to build their retirement savings even while they are paying down their student loan debt and cannot afford to make their own contributions into the plan.”

Democratic Sen. Ron Wyden of Oregon, primary sponsor of the bill, said the plan is to tackle the issue with recent graduates who are finding it difficult to save for retirement and pay their student loans at the same time. If passed, it would expand matching practices beyond contemporary boundaries whereby employers can only make matching contributions to a 401(k) if an employee is also making contributions.

The rate of matching for student loans and for salary reduction contributions must be the same. For example, if the plan is passed and an employee’s student loan payment is $500, and their company matches 50% of retirement plan contributions, the employer would contribute $250 to the employee’s retirement account.

Plan sponsors would decide if the matches are permissible for their respective systems. If elected, the option must be available to all employees eligible to make salary reduction contributions and receive matching contributions on those salary reduction contributions.

“The sooner workers start to save for retirement the better, and paying down student loans shouldn’t stop them from building their nest egg,” Wyden said in a statement. “While a comprehensive response to the student loan debt crisis is needed, this policy change is an important piece of the puzzle.”

In explaining his rationale, Wyden pointed to data highlighting that households spearheaded by an individual age 35 or younger who have a college degree but no student loan debt have an average DC account balance of $20,000, and, in contrast, households headed by a college-educated person with student debt have an average of $13,000 in their accounts.

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