What Secure Act 2.0 Would Mean for Student Loans
Many recovery-oriented laws have been considered by Congress throughout 2020, although most have not been passed. We all know the Omnibus law on emergency health and economic recovery solutions (HEROES law), which includes direct cash payments to Americans and financial aid to state and local municipalities, has been in limbo since late summer. In addition, the House and Senate have yet to decide on a second stimulus package, although one has been on hold for months, and even though key measures from the first stimulus package (such as unemployment) have already expired.
But one piece of legislation – the Secure Act 2.0 of 2020 – has a chance to win bipartisan support. The Secure Act 2.0 includes a series of changes intended to help strengthen and protect Americans’ retirement prospects. Some of the key provisions include automatic workplace registration retirement accounts, expanded retirement account options for nonprofit employees, an increase in the age of minimum required distributions (RMD) to 75, and higher catch-up contribution allowances for retirement savers aged 60 years and over.
Interestingly, the Secure Act 2.0 would also give an existing saver’s credit a boost for contributions to a pension plan or IRA. Specifically, the bill would create a single credit rate of 50% and increase the maximum from $ 1,000 to $ 1,500 per person. The maximum amount of income eligibility would also be increased so that more people could qualify.
But another key inclusion in Secure Act 2.0 also pulls student loan debt into the fray. Section 110 of the Act provides for the “treatment of student loan payments as optional deferrals for the purpose of matching contributions”.
If this bill becomes law, an employer could make matching contributions under a 401 (k), 403 (b) plan, or SIMPLE IRA while the employee makes student loan payments. The language of Secure Act 2.0 makes it very clear why student loan payments help protect retirement.
“The idea is that employees who are burdened with student debt may not be able to saving for retirement, and thus miss out on the available matching contributions ”, the authors of The law project write. “This legislation would allow them to receive these matching contributions due to the repayment of their loan.”
Benefits of Employer Student Loan Payments
For employees who have no student loan debt, this particular provision of Secure Act 2.0 will not change anything. But for those drowning in student loan bills that could take decades to pay off, this change could make a significant difference in their financial future.
According to Jim Anderson, director of financial aid at Montclair State University, people just starting out in their careers sometimes face the financial challenges of paying off student loan debt and, as a result, cannot afford to make the minimum contributions necessary to receive employer matching funds. company sponsored 401 (k) plans.
“This provision would allow more people to both pay off their student loan debt and start saving for retirement,” he says.
Bobby Glotfelty, Senior Chartered Financial Professional at Improvement for business, also points out that this decision could be a solid option for employers who want to show that they care about the well-being of their workers.
Giving or rewarding student loan payments is a concept that a number of forward-thinking companies have already touted as a benefit, he says, adding that he hopes this legislation will encourage more employers to follow suit. .
“With many Americans facing financial hardship right now and student debt continuing to rise, I believe benefits like these will become a much higher priority for younger employees and will be critical in helping businesses attract. and retain talent. “
Do workers in debt receive preferential treatment?
We all know that student loan cancellation has become highly political, and even President Biden has suggested a willingness to write off some student debt as part of the upcoming stimulus package. It is starting to appear that politicians view student loan borrowers as a huge voting bloc that they could potentially access, which makes sense since more than 44 million adults owe money on student loans.
Steve Muszynski, Founder and CEO of Financial Splash, says that this is a downside of any benefit related to student loan debt. Whenever a new incentive is provided, some may see it as “favoring a selected group of people over others,” he says.
However, the student loan provision of Secure Act 2.0 does not give workers in debt something that others cannot access. Workers who have no student loan debt can continue to receive matching funds for their retirement accounts if their employer offers to do so.
With that in mind, Muszynski says others will see this perk as a way to further help an ever-changing workforce, increase employee loyalty, and improve the good of the company.
“Allowing employers to provide these payments without negative tax consequences is worth it,” he says. “After that, the decision is up to individual companies. “
The bottom line
Secure Act 2.0 appears to have bipartisan support, but it remains to be seen whether it will get the boost it needs or run out of steam in the final weeks of Trump’s tenure as president. Either way, a temporary provision in the Coronavirus Aid, Relief and Economic Security Act (CARES Act) allows employers to make tax-free student loan payments of up to $ 5,250 for their workers’ loans until December 31, 2020. The money paid for student loans is not counted as taxable income for the worker until the end of this period, and it also allows a tax benefit on the employer’s side.
Before the passage of the CARES law, employers could already make payments for qualifying education expenses such as tuition and textbooks, according to the IRS. The CARES law has just extended this provision to include student loan debt.
Ultimately, it appears that student loan relief is a perk that at least some employees want to receive. According to Anderson, companies would be wise to listen to what their workers want.
“Some employers are already helping employees pay off student loan debts, often as part of a signing bonus, such as hires from top MBA programs,” he says. “More employers should consider creating such programs, both to help recruit new talent and as a way to retain employees. “