Improving Retirement Savings and Lowering Educational Debt

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November 14, 2017
Statements

Testimony of Congressman Danny K. Davis in Support of

the Davis-Lewis-Thompson Amendment

Improving Retirement Savings and Lowering Educational Debt by Allowing Employers to Make 401(k) Matching Payments for Employees Making Student Loan Payments

I am pleased to join with Representatives Lewis and Thompson in this amendment that improves retirement savings and lowers educational debt by allowing employers to make 401(k) matching payments for employees making student-loan payments who cannot afford to contribute to their retirement savings, with the option of electing that 50 percent of the employer contribution be applied to employee’s student loan principle.  This amendment is fiscally responsible in that it offsets any costs associated with modernizing 401(k) programs for workers with student loan debt with a minor increase in the corporate tax rate.

Although over three-quarters of Americans have access to an employment-based retirement savings account, few Americans can make the maximum contribution of $18,000 to their retirement savings account.  Any contribution to retirement savings is particularly limited for millennials struggling with heavy student loan debt.  The average student loan balance for 2016 graduates was $37,172, and only 30 percent of young workers use 401(k) programs to save for retirement.  Our amendment engages young workers with student loan debt into saving for retirement earlier and enables these workers to repay educational loans faster.

 

By allowing employers to contribute an employer-match into a retirement plan based on an employee’s student loan payment, younger workers who currently cannot afford to save for their retirement will begin saving much sooner.  Moreover, by allowing up to 50 percent of the employer match additionally to pay student loan principle, workers will pay off their loans more quickly and have a better opportunity to invest more in their retirement.  For example, according to early user data from Student Loan Genius and Grad Fin on business-driven educational debt repayment plans, employees in such plans repaid their debt in full on average about six years faster than they would have without the employer contribution.

 

Amending current retirement programs has many advantages.  It provides more options for employers to meet the needs of and retain their workers.  Further, it drives rapid adoption of these innovations to engage workers with student loan debt into saving for retirement because businesses already engage in these retirement plans and do not need to adopt complicated new programs.  Finally, it provides an incentive to smaller employers to begin retirement programs due to greater options for their employees.

 

This amendment offers a unique opportunity for government and private employers to work together to resolve America’s student debt crisis and improve worker retirement savings.