As millennials dominate the workforce, benefit focus shifts to student loans

Employers see crushing debt burden hurting productivity, workers' prospects

By Shelby Livingston, Business Insurance, 11/22/15

As millennials have become the majority in the U.S. workforce, some employers are trying to keep student debt from threatening the work environment by helping their millennial workers learn to balance loan payments with saving for the future.

Student loan debt adds to financial stress that can plague employees' productivity and lead to health issues and higher medical costs for employers, experts say. It also makes it harder for workers to contribute to the company retirement plan, potentially delaying their retirement.

“It's definitely an employer issue,” said Heather Tredup, Chicago-based partner of retirement communications at Aon Hewitt. “Employers spend a lot of money to provide benefits to their employees ... but when there is a barrier to saving, such as credit card (debt) or debt management, that means that employees may not be getting the full advantage of the benefit that is available to them.”

Outstanding student loans total more than $1.2 trillion. About 70% of 2014 college graduates had student loan debt, with an average of $28,950 per borrower, according to the nonprofit Institute for College Access and Success.

The issue looks to grow, as millennials surpassed Generation X in the first quarter of this year to become the largest cohort in the U.S. workforce, according to the Pew Research Center.

Still, only 3% of employers help pay their employees' student loan debt, according to the Society for Human Resource Management.

Some employers are tackling the problem aggressively.

New York-based professional services firm PricewaterhouseCoopers L.L.P. said in September that it will contribute $1,200 a year for up to six years toward employees' student loans. Others are helping employees refinance the loans or providing tuition subsidies to those in school.

Sensing a lucrative market, benefit startups aimed at helping employers alleviate millennials' financial burdens are appearing.

Gradifi Inc., a Boston-based firm partnering with PwC, helps employers make contributions toward workers' student loan debt, as does Santa Monica, California-based Tuition.io Inc. San Francisco-based startup Social Finance Inc. partners with employers to provide student loan refinancing to employees.

But benefits experts say less expensive methods can be just as effective.

Most often, employers offer financial education through videos, webinars and financial planner meetings to address issues millennials might face, such as budgeting, Ms. Tredup said.

“The focus tends to be on how do you create a budget, how do you live within your budget, and if you're living beyond your budget — so maybe you're experiencing more debt issues today — how do you start to address those?” she said.

At Armonk, New York-based IBM, employees are offered free one-on-one counseling on whatever financial issues they face. The subject “can range anywhere from your health care plan, looking at how much should I be contributing to my 401(k), what should my investment strategy look like in that plan, looking at student loan debt and consolidation,” said Kori Weber-Parker, Franklin, Wisconsin-based director of benefits at IBM.

IBM also helps employees consolidate their student loans through a third party at a small discount, she said. “When you have a stressful environment at home, you then carry that in over to your work, and it does impact productivity,” Ms. Weber-Parker said. “So if we can help our employees relieve some of that stress around their financials and improve the financial wellness position of each employee, we feel that that will help them on the job.”

The shift in focus to workers' current financial issues versus those of later years comes as employers and consultants realize millennials' sense of retirement can be very different than that of prior generations, Ms. Tredup said.

An October study by personal finance firm NerdWallet Inc. pinpoints the retirement age of 2015 college graduates at 75 because of increasing student loan debt and rent. Today, the average retirement age is 62.

For the baby boomers who are at or near retirement age, “we're finding that people aren't ready to retire, so they're staying on longer with their employer,” said Ted Goldman, managing director and U.S. retirement leader in the wealth practice at Buck Consultants at Xerox in Washington.

That has come as many employers have replaced traditional pensions with defined contribution plans that put more responsibility on workers' shoulders.

In those cases “the employer now has a workforce that's starting to bottle up opportunities for junior people,” Mr. Goldman said, and results “in higher health care costs because they have an older working population.”

Buck Consultants has developed a tool that automatically enrolls workers in the company retirement plan at a contribution level based on factors such as the worker's age, salary and amount they have in their 401(k) account, Mr. Goldman said.

“Doing that every year throughout your working lifetime, if you let it work, you will always be on a path toward a secure retirement,” he said.

In addition to retirement, debt-saddled millennials are putting off other big purchases such as “buying a house (or) buying a car,” said Meghan Murphy, director of thought leadership at Fidelity Investments in Boston.

So the investment firm advises workers to spend 50% of a paycheck on essential expenses, such as housing, food and health care, while saving 15% for retirement and 5% for an emergency fund.

It's easier said than done, but millennials welcome help at work. According to an October study by Aon Hewitt, 46% of millennials said they want information on debt management from their employer.

While millennials “know they should be saving” for the future, “what we often hear in conjunction with that, though, is the guilt of not being able to do it or not feeling like they're saving enough,” Ms. Murphy said.