401(k) matches have been one of the main job perks employers have used to entice new hires for years, but for a lot of young workers, they're not all that attractive. Many recent grads have mountains of debt, but they're not earning very much. Finding money for retirement savings after paying bills and student loans isn't easy.
But a new policy taking effect in 2024 could help these workers kill two birds with one stone. Here's what you need to know.
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Introducing a new employee benefit
The SECURE 2.0 Act, passed at the end of 2022, made several changes to retirement plans, including 401(k)s. But many of its provisions haven't gone into effect yet. One of them, which will begin in 2024, enables employers to offer a new benefit to employees.
Companies will now be able to make matching retirement account contributions to 401(k)s, 403(b)s, and SIMPLE IRAs on behalf of eligible employees if those employees make qualifying student loan payments. A qualifying payment is defined as any debt you took on solely for the purpose of paying educational expenses, which would include private as well as federal student loans.
Essentially, this policy enables your student loan payments to stand in for 401(k) contributions, so you can pay down your debt while still earning a company 401(k) match for retirement. If you earn $30,000 per year and your company offers a dollar-for-dollar match on up to 5% of your income, you could earn $1,500 in 401(k) funds just for paying an equal amount toward your student loans.
And, of course, if your company offers a 401(k) match, you're still free to earn it the traditional way by deferring part of each paycheck to your 401(k). But this new alternative could be an easier option if money is tight.
But there's a catch
Employers will be able to offer this student loan matching benefit to employees beginning Jan. 1, 2024 -- but no one is going to make them do it. Much like how some companies don't offer 401(k) matches of any kind, some employers will likely choose to only offer matches to those who make direct contributions to their retirement accounts. If your company does this, there's nothing you can do about it other than asking it to change its policy.
There's no way to know how many companies will adopt this new employee benefit. But because student loan debt is a huge issue for many workers, companies that do offer this option will undoubtedly be more attractive to new hires.
If you're lucky enough to work for a company that does offer student loan payment matching, you will have to certify to your employer that you actually made your student loan payments during the year. It's currently unclear what this process will look like.
Those hoping to take advantage of this perk next year should reach out to their employers now to learn whether they plan to adopt this benefit and what you have to do to certify your earnings in order to qualify for your matching funds. Remember, this is new for employers as well, so it might take a little time to sort everything out. If you have any questions or concerns, communicate them to your HR department to ensure that everyone is on the same page.
