A new debt repayment program that marries employers’ 401(k) plans with employees’ student loans aims to empower employees, and gives employers an edge in recruiting and retaining top talent.
Thrive Flexible Matching Program, which was started in November 2018, is a new employee benefit that allows workers to allocate their employer match dollars toward their retirement account, their student loan debt, or a combination of both.
David Krasnow, CEO of Thrive, pointed out that to date only 4 percent of employers offer a student loan benefit, but it’s estimated to grow significantly in the next few years.
“The challenge for companies is how to offer an effective program without breaking their benefits budget,’’ he said. Thrive is budget-neutral, utilizing a benefit amount that is already being offered to employees but now enabling employees to determine how to best use those dollars.
Krasnow also pointed to an unemployment rate of 4 percent and said there is more competition for employers to find and keep better employees. Furthermore, he said the program is a great perk for millennials who say their No. 1 concern is paying for student loan debt.
So those are the issues the Cleveland, Ohio-based Thrive is taking on. Krasnow, also a retirement plan advisor, said he began to conceive of the idea in late 2017 when one of his clients mentioned that she had read an article on how a retirement plan was using 401(k) dollars to help with student loan payments.
“The idea and concept enthralled me. I just thought we had to find a solution to help employees with this quickly growing debt crisis,’’ Krasnow said, pointing to the 44 million Americans who have student loan debt reaching $1.5 trillion, and $32 billion in student loan debt in default.
Krasnow said he got even more excited about the idea when the Internal Revenue Service issued a private letter ruling in August 2018 approving Abbott Lab’s tax-deferred program, run through Abbott’s 401(k) plan, to help those paying off their student loan debt to also save for retirement.
Abbott had sought and received approval from the IRS for its Student Loan Repayment program. Under the SLR plan, if an employee contributes at least 2 percent of compensation into the plan, the employer will make a non-elective contribution of 5 percent of compensation to the employee’s 401(k). So Abbott will make a retirement plan contribution for the employee, even if the employee did not make a contribution to the plan.
“That got my mind racing,’’ Krasnow said. “I thought the Abbott Labs ruling was a great first step, but knew the concept could be improved upon to help employees with the current debt that they were struggling with while also saving for retirement.’’ He reached out and partnered with BenefitEd, the Nebraska-based technology firm, to create an implementation, education and support platform to work hand-in-hand with their patent pending student loan benefit repayment program.
As part of the onboarding process, Thrive provides education and outreach to employees. Once the employee enroll in the program, the employer receives a monthly election file for payroll with the amount for payroll deduction and employer match. Thrive handles all back-end administrative work, such as ensuring elections follow benefits plan rules and applying payments to each employee’s student loan. Employees receive monthly email confirmation when payment is made to their student loan provider.