Two-thirds of millennials aren’t saving for retirement, largely because they're facing a more present financial concern: burgeoning student loan debt. Student debt is approaching $1.5 trillion – $620 million more than U.S. credit card debt – and graduates today find themselves with $39,400 in student loans on average. In fact, one in six graduates owes more than his or her annual incomes, and about 2.5 million Americans have student debt in excess of $100,000.
That's why healthcare company Abbott is offering its employees a new student loan/401(k) program. Recently, Abbott announced the launch of a new benefit, the Freedom 2 Save program, that will help employees pay off their loans. If employees can put two percent toward paying down their student loans, Abbott will match it with a deposit into their 401(k) accounts.
"We fundamentally believe innovation is not only about our technologies — it’s also about the opportunities we create for the people who invent and refine them, and that’s why we dig deep to figure out what the greatest pain points are for our employees and then work to come up with innovative ways to address them," says Abbott’s executive vice president of Human Resources Steve Fussell. "We don’t conduct research in the market and with recruits and employees to be like everyone else – we use these insights to offer them something different. What we learned in the U.S. over the last several years was that one of the biggest financial concerns, especially for millennials and gen Z, was student loan debt. More specifically, we learned that crushing levels of student debt had caused some employees to choose between saving for their futures and paying off school loans... That’s an especially big problem when you consider every decade you wait to start saving for retirement, the amount you need to save roughly doubles."
Just four percent of companies offer direct payments to employees to help with student loans — some pay annually for up to a specific number of years and others pay up to a certain amount in total. But Abbott is the first company to structure a benefit with no limit to its contributions and the tax benefits of a tax-deferred investment since most other benefits are immediately taxable.
"We’re the only company that we know of that has received a private letter ruling from the IRS to structure our program in this innovative sort of way," Fussell says. "We believe this is worth more for the employees in the long run — by helping them to save for the future while time is on their side, while simultaneously freeing them up to pay off their student loans more quickly."
An employees who joins Abbott with a starting annual pay of $70,000 and takes advantage of this Freedom 2 Save benefit program could see $54,000 accumulated in their 401(k) account over a 10-year period, assuming a six percent average annual return and yearly merit increases of three percent – without any 401(k) contribution of their own. And that amount could be worth hundreds of thousands retirement savings by the age of 60.
"We hope those who are paying down loans, but not saving for retirement – usually millennials and Gen Z employees – will use this as a reason to jumpstart their retirement savings, while still focusing on paying down their loans," Fussell says.
All Abbott U.S. employees are eligible and they don’t have to contribute anything into their 401(k) accounts to receive what is essentially a company "match" of five percent, so long as they are paying down their loans (with at least two percent of their pay).
Rariety Monford, a recent graduate now working as an engineer at Abbott, says she plans to take advantage of the new benefit that's saving her from what she calls a catch-22.
"I went to school for biomedical engineering at North Carolina A&T State University, a historically black college or university (HBCU) — and because I wanted to attend an HCBU, I ended up with out-of-state tuition and have about $60,000 in student loan debt," Monford explains. "I have been ambitious in paying of my student loans, contributing a high percentage of my salary to paying them off as quickly as possible. Before Freedom 2 Save, I also was contributing the minimum contribution to my 401(k), two percent, in order to receive Abbott’s match of five percent. It was a struggle – when you have student loan debt, you feel guilty about any extra purchase you make."
While Monford earns a competitive salary, she says she's still felt the burden of debt. It affects major decisions in her life, like the car she drives the apartment she lives in and the vacations she takes. But the Freedom 2 Save program means that she can contribute even more toward paying that debt off faster while Abbott takes care of ensuring that she's saving for her future.
AnnaMarie Houlis is a multimedia journalist and an adventure aficionado with a keen cultural curiosity and an affinity for solo travel. She's an editor by day and a travel blogger at HerReport.org by night.