Brace yourself for some startling financial facts:
The current high level of student loan debt has economic and social costs beyond the debt itself:
Employees with student loan debt may experience financial stress and be less likely to participate in employee-funded benefit plans like 401(k) plans, life insurance and disability plans, voluntary benefits, and even health insurance.
Keeping the benefits “status quo” may not only be counterproductive with respect to employees with high student debt loads, it can also limit a company’s ability to attract and retain Millennials. For example, 45% of Millennials will change jobs if a new employer offered student loan reimbursement — compared to only 19% of other working generations, according to a recent Gallup survey, "How Millennials Want to Work and Live."
Employers are using various benefits strategies to address employees whose ability to save for retirement and weather financial crises is affected by student loan debt. Providing student loan repayment assistance is an obvious way that some employers are attacking the problem.
Employers can use different methods to help their employees repay their student loans. One method is for the employer to help pay down the employee’s loan directly or through reimbursement to the employee. Many large employers are experimenting with this form of loan assistance. Employers often cap the total loan assistance at an amount like $5,000 or $10,000, and may make the assistance available on a monthly or yearly basis. Employers can make the payment contingent upon the employee’s continued employment for a certain number of years.
Another method is to link employees to companies that can refinance their loans at rates that may be more favorable than their current loan rates. And yet another method is to provide financial education that covers topics like student loan management and refinancing, budgeting, home buying, debt, healthcare expenses, and saving for retirement.
No wage or employment tax exclusion exists for employer-provided student loan repayment assistance. Several bills that would provide tax relief for such assistance have been introduced in the House of Representatives. However, none have passed.
So, any payment of student loan principal or interest by an employer on behalf of an employee should be treated as taxable wages for income tax withholding, employment taxes, and Form W-2 reporting. Employers should consult with their accountants about whether the payments can be deducted for the company’s income tax purposes as business expenses.
Employers offering other types of student loan repayment assistance, such as access to favorable refinancing and/or education, should consult with an advisor regarding whether such assistance can be provided in a tax-free manner.
In addition to student loan repayment assistance, employers are looking at other ways to help shore up their employees’ financial wellness. For example, many employers are utilizing 401(k) automatic enrollment as a way to nudge employees into saving for retirement, and automatic increases as a way to continue nudging them along. Employers are also offering benefits that can ease the financial burden faced by younger employees (who are more likely to have student loan debt), such as paid parental leave, wellness programs that reward healthy behaviors, and contributions to HSAs, HRAs and/or FSAs.
In addition to our Resource Library, we provide regular webinars that are focused on emerging issues in benefits. For more information about our complimentary webinars, including registration and scheduling, please see our Events page. For more information about engaging employees and other HR issues, please contact us.
Sarah provides employer-focused guidance on human resource matters. With an emphasis on employee benefits and the Affordable Care Act, she distils the complexity of employment laws into understandable action items that meet a client’s business goals.
Sarah provides employer-focused guidance on human resource matters. With an emphasis on employee benefits and the Affordable Care Act, she distils the complexity of employment laws into understandable action items that meet a client’s business goals. During previous private practice experience, Sarah handled numerous complex benefit matters, including the transition of benefit plans in large corporate acquisitions, de-risking solutions in pension plans, contested health plan claims, DOL and IRS audits and the implementation of ACA-compliant health plan solutions. Sarah graduated from University of Wisconsin Law School, with a Bachelor of Arts degree from Grinnell College.
A recent survey by the Society for Human Resources Management (SHRM) reported 94% of leaders feel employee engagement is an important or very important workforce challenge. An engaged workforce increases operational income by over 19%, while a disengaged workforce can drain over 34% of an organizations’ operational income. Additional risks of low engagement can be seen in increased turnover, low customer satisfaction ratings and even increased employment litigation.
I had the opportunity to speak recently at a Society for Human Resources Management (SHRM) conference where I shared my experience from my former career as a flight attendant. There’s a parallel between my previous office, an airplane, and a more traditional office when thinking about the importance of trust in connecting with and motivating people.
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