By Annika Reczek (Associate Consultant)
Have you ever struggled with deciding if you will have enough money for your monthly student loan payment if you decide to contribute to a 401(k) plan at work? It comes as no surprise that the United States student loan debt has become higher over the years. What may be a surprise is that this debt accounts for cumulatively $1.5 trillion dollars, according to Forbes. This number is the accumulation of the debt from 44.2 million individuals, or about thirteen and a half percent of Americans, who are expected to make regular payments to their particular loan agencies.
Now the IRS is giving employers new tools to help their workforce. On August 17, the IRS proposed a “Student Loan Benefit Program”, in a non-binding private letter. An employer can contribute a percentage of the employee’s eligible compensation to their 401(k) if that employee makes a payment of at least 2% of their compensation towards paying off their student loans.
Every new benefit program will present challenges for the HRIS teams and test their adaptability. For many companies, Workday has become the system of record for 401(k) contributions, and employers need to ensure that their system is updated to track employee’s student loan payments, should they choose to opt to participate in this program.
In order to effectively implement this Program, employers would need a system for collecting, saving and storing employee student loan payment data that meet the criteria for the program. For the employer, this includes:
- Contributing to a 401(k) plan for an employee
- Receiving and utilizing student loan payment details
- Calculating the amount that will be contributed based on the Student Loan payment
- Preventing double dipping of employer 401(k) match
Firstly, the proposed Student Loan Benefits Program outlines that an employer must base their percent contribution based upon the employee’s student loan payments. Once an employee opts into this program, they still may contribute to their 401(k) in addition to paying their student debts. In this scenario, the employer can not match their independent 401(k) contributions at levels that are discriminatory. Since this double dipping is not allowed, there needs to be a system in place to prevent the employer from contributing a percent of funds from the student loan payments and an employee’s additional 401(k) contribution.
Additionally, in order to verify the employee’s payments to their student loan agency, Workday needs some sort of connector with the ability to accurately receive their needed data, possibly with a deduction code. Until Workday provides an integration template to retrieve this sort of information, the employer has to establish this method of data retrieval. This includes assessing whether Workday or plan administrator is responsible for nondiscrimination requirements.
A possible solution is to create an email parser that would receive student loan receipts and load the payroll input needed for the employer contribution with a comment giving details of the student loan payment. Then the employer could generate their matching compensation rate to deposit into the employee’s 401(k). Automating this service would create a reliable method for determining an employer’s contributing percentage to that employee’s 401(k).
As America begins to faces the reality of it’s debt, we can only anticipate other innovative contribution plans, for which Workday’s existing architecture will have to handle. Fortunately Workday’s underlying structure lends itself well to solutions like this.