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Student Loans Force Employees to Leave Billions in 401(k) Dollars on the Table

Ryan Gardner | December 6, 2018 Employer Insights

Ryan Gardner

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Lover of all things marketing & project management

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Student Loans Force Employees to Leave Billions in 401(k) Dollars on the Table

For decades, 401(k) plans have been a staple of workplace benefits programs. Employees are given an outlet to contribute a percentage of their salaries into their retirement nest egg, and to sweeten the deal – and help retain those employees for the long haul – employers will chip in some of their own money into those plans, often matching the employee’s contribution.

Some of the most recent data shows that employers really want their employees to enroll in their 401(k) programs. In 2016, 71 percent of employers said they were likely to either increase or dramatically increase their contributions to employee 401(k) plans. That same year, the average company’s 401(k) matching contribution rose nearly a full point, to 4.7 percent of employee salaries from 3.9 percent the previous year. Major brands like Visa and Aflac have also made waves for how significantly they’ve scaled up their 401(k) match programs, with Visa announcing this year they would increase their match levels by 200 percent, and raise their match limit from 3 percent to 5 percent.

And yet, many employees still aren’t really biting. In 2017, the take-up rate for employees contributing to their 401(k) plans was just 69 percent.  That number might sound big on its own, but it also means that 31 percent of employees declined to take up their employers on their 401(k)-match offer. That’s leaving money on the table – and not just small change, either, but collectively around $24 billion! And that adds up on an individual level, coming out to over $1,300 per employee and around $43,000 per plan over 20 years.

At a time when one-third of Americans have less than $5,000 saved for their retirement, why in the world are so many working people essentially walking away from free money to help financially support their post-career lives?

Student loans are a main culprit. The burden of student loan debt in this country has risen to such crippling levels of unaffordability that working- and middle-class people are having to devote more and more of their paychecks to their monthly loan payments over their 401(k) plans. When the choice comes down to today’s student loans or tomorrow’s financial future, for millions of people they’re forced to go with the former.

As citizens of the richest country in the world, millions of Americans, young and old, male and female, of all racial backgrounds, should not be forced to make this trade-off. We should not have to mortgage our futures on trying to make ends meet in the present. And with the IRS’ new ruling allowing employees who are making student loan payments to earn their company’s contribution to their 401(K), those workers can now get back on the path to a steady financial future.  

Vault is working hard to make this false choice a thing of the past. By working with employers to help pay down employees’ student loan debts, Vault is empowering employees to become debt defiant, free up their hard-earned dollars for their 401(k) plans rather than their student loans and take back control of their financial futures.