Operationalizing SECURE Act 2.0 For Employee Financial Well-Being

A blueprint for employers to enhance workplace financial culture

In the ever-evolving landscape of employee benefits and competitive compensation packages – both to attract and retain talent – the SECURE Act 2.0 may be a game-changer. Even more, it may actually be good for employees’ well-being.
 

For employers looking to not only comply with the legislation but also harness its potential to benefit their workforce and the organization as a whole, strategic operationalization is key. By proactively addressing the financial stress of employees, organizations can create a positive ripple effect that enhances productivity, recruitment efforts and retention rates.

Understanding the SECURE Act 2.0

Before diving into operational strategies, it's crucial for employers to understand the SECURE Act 2.0. The Setting Every Community Up for Retirement Enhancement (SECURE) Act, passed in 2019, introduced significant changes to retirement planning in the United States. Fast forward to today, and it has added more modifications to further enhance retirement security.

One of the major changes includes auto-enrollment and auto-escalation within employer-sponsored retirement plans. Auto-enrollment automatically enrolls employees in the company’s retirement plan, while auto-escalation increases their contributions over time. These features make it easier for individuals to start saving for retirement and gradually increase their savings rate. The SECURE Act 2.0 also increased catch-up contribution limits for individuals 62 and older.

One unique feature of the SECURE Act 2.0 is that student loan payments may now also count as retirement contributions beginning in 2024, allowing employers to make contributions to their company retirement plan on behalf of employees paying student loans instead of saving for retirement. This provision is intended to assist employees who may not be able to save for retirement due to paralyzing student loan debt, and therefore unable to tap into employer contributions to retirement plans.

Just How Bad is the Student Loan Debt Problem?

According to the Federal Reserve, the student loan debt balance in the United States has increased by 66% over the past decade, now totaling more than $1.77 trillion. While many individuals had hoped for much of that debt to be forgiven, loan payments officially resumed last October after a three-year pause.

This meant that more than 45.3 million student loan borrowers would need to add between $200-$300 in monthly payments, which could feel like as much as a 5% pay cut. It’s also important to point out that this is not just a problem for entry- and junior-level employees. Borrowers ages 35 to 49 owe more than $620 billion in student loans, which also includes the highest number of borrowers with over $100,000 in loans. Additionally, there are more than 2.4 million individuals over the age of 62 with student loan debt, owing a combined $98 billion in loans. Clearly, this is a problem that reaches every career level.

As Americans continue to struggle, a survey from Morgan Stanley last year showed that over one-third of respondents didn’t think they would be able to make their payment. As it turns out, a staggering 40% missed their first payment, according to the Department of Education.

Whether those missed payments were due to lack of awareness or financial duress, most Americans are facing significant challenges and mounting debt obligations. Currently, the U.S. savings rate continues to dwindle to record lows. According to a Bankrate survey, 49%of adults have less savings or no savings compared to one year ago.

Student Loan Debt, Mental Health and the Workplace

Currently, the majority of Americans (54%) say they struggle with mental health issues because of student loan debt, and a new study from the University of Georgia concludes that student loan debt could be making America’s mental health problem worse.

Taking a closer look, a survey from financial coaching company Student Loan Planner found that 53% of high debt student loan borrowers have experienced depression because of their debt; nine in 10 borrowers experienced significant anxiety due to their loan burden; and one in 15 student loan borrowers surveyed have considered suicide due to their student loans.

Additionally, stress from student loan debt is encroaching other aspects of life. Aside from delaying major purchases like homes, financial woes impact personal relationships and distract individuals at work. In fact, according to SmartDollar Employee Benefits Study, 36% of employees have missed work due to a financial problem. They're also more easily distracted and unable to focus on their job, which can affect workplace productivity. Lack of sleep is another huge problem for people struggling with their money.

Clearly, this also impacts business. If employees are unable to perform at their best, productivity suffers. A Harvard Business Review study points out that $150 billion in productivity was lost in a single year when employees came to work stressed. This is far greater than the costs associated with employees not showing up to work at all.

How Employers Can Operationalize SECURE Act 2.0

Financial stress is a significant productivity inhibitor. Employers can leverage the changes brought by SECURE Act 2.0 to alleviate financial burdens on their workforce. By optimizing retirement plans and offering financial wellness programs, particularly around student loans, organizations can contribute to reducing stress levels. After all, a less stressed workforce is a more engaged and productive one, fostering a positive work environment.

Specifically, employers can operationalize the legislation’s latest changes through accurate match contributions and real-time payment visibility. Employers should also consider educational assistance programs that match student loan payments up to $5,250 per year tax free. This program was made available in March 2020, yet only 8% of U.S. employers offer it, according to the Society of Human Resource Management’s 2023 employer benefits survey.

Meanwhile, recruitment and retention continue to be a challenge, with more than one-third of HR leaders indicating they don’t have the resources to attract top talent. In fact, seven in 10 consumers believe they would perform better at work if their employer offered more financial wellness benefits, and over half of employees rank financial wellness their number one desired employer benefit, up from 29% in 2021. Employers that operationalize SECURE Act 2.0 effectively can position themselves as organizations genuinely invested in the financial well-being of their employees. This can serve as a powerful differentiator, attracting top talent and boosting retention rates.

Ultimately, by leveraging legislative changes in a supportive manner, employers can foster a positive financial culture that resonates throughout the entire workforce, benefiting both their employees and the organization.

Author Bio

Michelle Scanlon is the Chief People Officer of EarnUp, an award-winning, consumer-first financial technology platform that intelligently automates loan payment scheduling.