ARA Endorses Student Loan Debt Bill

The American Retirement Association has offered its support for newly introduced legislation that seeks to help employees save for retirement as they repay their student loans. 

The Retirement Parity for Student Loans Act (S. 1443) introduced April 29 by Senate Finance Committee Chairman Ron Wyden (D-OR) would permit 401(k), 403(b), SIMPLE and governmental 457(b) retirement plans to make matching contributions to workers as if their student loan payments were salary reduction contributions. As such, recent graduates who cannot afford to save money above their student loan repayments would no longer have to forego the employer match under the proposal. 

“The ARA thanks Chairman Wyden for championing this important issue and urges Congress to promptly enact the Retirement Parity for Student Loans Act into law,” the organization notes in its letter of support.

The ARA says it is especially pleased to see new language in the latest version of the bill that addresses the impact this new retirement plan design feature could have with the nondiscrimination average deferral percentage (ADP) test that applies to 401(k) plans. “Many employers are interested in this new benefit that gives employees matching contributions into the 401(k) plan based on the amount an employee is paying in student loans. Small businesses will now not have to worry that this benefit puts their retirement plan testing at risk,” the organization states.  

With student loan debt increasing rapidly over the past two decades, this issue has been receiving increasing attention on Capitol Hill and within the retirement community, particularly after a 2018 IRS private letter ruling that permitted a 401(k) plan to be amended to include a student loan benefit program. That ruling allowed an amendment to a plan providing that student loan repayment (SLR) nonelective contributions under the program would not violate the “contingent benefit” prohibition.

According to data by the Employee Benefit Research Institute, the percentage of families with student loan debt grew from 10.5% in 1992 to 22.3% in 2016. For families with heads younger than age 35, the percentage with student loan debt approaches one half (45%) of those households and the percentage is over a third for those with a family head ages 35 to 44.

EBRI’s data also shows that households headed by a person age 35 or younger with a college degree and no student loan debt report median DC account balances of $30,000—compared to $15,000 for similar families that have student loan debt.

“Right now, generations of Americans are struggling under the crushing burden of student debt. They are putting off buying a home, having children and saving for retirement to pay down their student loans,” Wyden stated in announcing the legislation, further noting that it’s important to put every option on the table to relieve this burden. 

The bill is cosponsored by Sens. Maria Cantwell (D-WA), Sheldon Whitehouse (D-RI), Sherrod Brown (D-OH) and Ben Cardin (D-MD). A summary of the legislation is available here; the text of the Retirement Parity for Student Loans Act is here.