New Senate Bill Could Help Millennials Save for Retirement
Wouldn’t it be amazing if millennials could save for retirement while simultaneously paying off their student debt? A new bill introduced to Senate could make this possible, thus brightening the financial outlook for millions of cash-strapped millennials.
Why was the bill introduced?
The bill was introduced just two days after an announcement stated student loan debt in American is now in excess of $1.465 trillion. While it may seem a large number, it becomes even more so when you realize it is more than double the amount it was when the last recession ended.
What does the bill say it will do?
The bill has been titled the “Retirement Parity for Student Loans Act.” It was proposed by Ron Wyden, who is the Senate Finance Committee Ranking Member. The goal of the bill is to give the average working American flexibility to save for their future (i.e. retirement) while still being able to make their repayments on student loans.
How will it work?
If the bill were to be passed in Senate, then those employees who are unable to afford both retirement savings and student loan debt payments would be eligible to receive help from their employer.
The help would work like this:
The employee would make a contribution to their student loan debt directly from their salary, in much the way they would contribute to a 401(k). In turn, their employer would match that contribution and place it towards a worker’s retirement fund.
Let us say, for example, an employer offered a 5% contribution match on a 401(k) plan. The employee makes $500 a week but is unable to make payments on their student loans while making a 5% contribution on their retirement savings. The employee would be able to make $25 payments towards their student loans, while their employer still contributed $25 to their retirement savings.
Based on the numbers above, this bill could help employees to reduce their student debt by $1,300 in a single year while simultaneously contributing the same to their retirement funds.
Alone, of course, this is not enough to pay off all of a person’s student debts, but it is a big step in the right direction. Even with the bill, employees are encouraged to make additional weekly or monthly payments towards their debt if they want to see it paid off.
Who will the bill apply to?
The bill would implement a voluntary benefit from employers, not a mandatory one. Some of the best employers, however, would almost certainly implement the plan were it to be passed. It would be applied to SIMPLE, 401(k), and 403(b) retirement plans that have employer matching for contributions.
When should we expect to see changes?
If the bill were to be passed in Senate, then the changes to these employer-matched retirement plans would officially take effect in 2020. The bill is currently in preparation for next year, when it will officially be introduced to Senate for more in-depth conversation on what it might mean for the future state of America.