Making student-loan debt payments was found to have a “negative impact” on both the average 401(k) employee-contribution rate and account balance, according to a new research report published Feb. 8 by the Washington, D.C.–based Employee Benefit Research Institute (EBRI) and J.P. Morgan Asset Management. The report, “Student Loans and Retirement Preparedness,” provides information on how […]
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Making student-loan debt payments was found to have a “negative impact” on both the average 401(k) employee-contribution rate and account balance, according to a new research report published Feb. 8 by the Washington, D.C.–based Employee Benefit Research Institute (EBRI) and J.P. Morgan Asset Management.
The report, “Student Loans and Retirement Preparedness,” provides information on how student-loan debt payments affect 401(k) contributions of those who are contributing and whether participants increase or decrease their contributions when the status of their student-loan payments changes, or when payments end or start.
Provisions in the legislation SECURE 2.0 allow for many potential changes to 401(k) plans and financial-wellbeing programs, including matching contributions to 401(k) plans from student-loan debt payments. However, many benefit changes can result in “additional expenses,” and in some cases, these additional expenses might not result in the “impact that was expected,” EBRI said in its news release about the report.
As a result, the researchers reviewed 401(k) plan recordkeeper data on balances and contributions of active participants linked with banking data from these same participants to see if they are making student-loan payments.
Researchers examined a three-year period to determine if contribution changes resulted after stopping and starting payments. They were also looking to determine if student-loan payments were made in prior years instead of just a one-year snapshot, which could miss participants who were making payments in the year(s) prior to an analysis year, EBRI said.
The Employee Benefit Research Institute and J.P. Morgan Asset Management are conducting this study as part of an ongoing joint effort to deliver data-driven research to better understand how the financial factors faced by 401(k) plan participants outside of their 401(k) plan impact their retirement preparations.
Overall, the goal is to provide insights to help build a stronger retirement system by policymakers, plan sponsors and plan providers, the EBRI said.