A small percentage of U.S. companies — including PwC, Fidelity, and Aetna — have stepped up to help their employees cope with the education loans weighing them down by offering them cash to help them reduce their debts. While I applaud them, one downside of their approach is simply giving their workers cash raises their income taxes, diminishing the impact of their efforts.
To address this dilemma, Abbott, where I lead Human Resources, took a different approach. We introduced a program last August to contribute 5% of pay to a tax-deferred 401(k) plan for full- and part-time workers who direct at least 2% of their pay toward paying down their student loans. The Internal Revenue Service reviewed — and ruled favorably on — the 401(k) plan structure we came up with to make this possible.
In addition to the tax issue, our program — called Freedom 2 Save — helps tackle another problem: two-thirds of millennials aren’t saving for retirement. For every decade a person delays saving for retirement, the amount he or she ultimately needs to save doubles. Unless they start putting aside money now, many graduates will have to work into their 70s.