The Consumer Federation of America, a non-profit organization of over 270 consumer education, advocacy and cooperative members has designated the third week in February “America Saves Week”. With savings top of mind across the nation, it’s an ideal time for employers to consider additional ways to help employees save for both short and long-term goals.
529 college savings plans are valuable savings and investing vehicles that can be introduced by employers with ease to support both employees who plan to pursue various forms of higher education themselves and those who have children and other loved ones who someday will.
The WHY and HOW of Offering 529 Plans as a Financial Wellness Benefit
There are many reasons to introduce 529 plans as a financial wellness benefit. Here are just a few:
1. Priceless Education
With 43+ million Americans currently weighed down by $1.7+ trillion in student loan debt and with women, Blacks and members of the LGBTQ community most adversely affected, providing education for employees about one of the most effective ways to avoid or minimize future educational debt can be priceless. Such information is very much needed given that 67% of Americans indicate that they are not aware of the features and potential tax benefits of 529 plans, according to a May 2021 Edward Jones 529 awareness study. Employers are well-positioned to help fill this knowledge gap by providing information about the existence and usefulness of 529 plans. By doing so, they will empower employees to have more favorable outcomes when it comes to covering the cost of higher education for themselves and/or their family members.
2. Valuable Tax Benefits and Versatile Use
The combination of valuable federal tax advantages that 529 plans offer (including tax-free growth), along with annual state tax deductions or credits in 35 states and the District of Columbia, make them a good choice for those saving and investing for higher education. In addition to the tax benefits, the versatility of 529 plans makes them quite appealing as well. 529 college savings plans are not just for college. In fact, they can be used at a wide range of eligible 2-year and 4-year institutions, along with trade, technical, professional and graduate schools across the U.S. and world, and can cover a wide range of educational expenses including tuition, fees, room and board, books and supplies and even computers. Additionally, the ease with which employees can get started — in under 15 minutes and with as little as $25 as an initial contribution — makes them a benefit of appeal to a wide range of employees.
3. Recruiting and Retention
With only 10% of employers offering access to 529 plans, and a mere 1% making employer contributions to them (according to SHRM’s 2020 Benefits Survey) – both percentages down from 2019 — those employers who do offer this type of benefit will have an opportunity to stand out in a competitive recruiting and retention environment. By offering access to and education on 529 plans along with optional matching contributions, employers have an opportunity to demonstrate they care about the financial and emotional weight that educational costs often have on employees and their families.
4. Increased Savings
Through the introduction of 529 plans, employers can assist employees in saving more for their higher education goals. According to the May 2019 ISS Market Intelligence 529 Data Industry Analysis, employees who contribute to 529 plans through payroll deduction at work save 75% more than if they made automatic contributions from bank savings or checking accounts. These additional savings can go a long way in helping employees to cover the cost of higher education.
Just as there are various reasons to offer 529 plans as a workplace benefit, there are also various ways to do so:
1. Comprehensive multi-state platform for payroll deduction and optional employer matching
In addition to single state 529 plan workplace solutions (available directly from state 529 plans or their program managers), employers can utilize a broader 529 platform, such as Gift of College. A platform of this type is often of interest to employers who have employees in multiple states, who prefer their employees to have information about and access to all 529 plans and who wish, as an added benefit, to offer 529A (ABLE) plans as well for employees who are disabled or who have loved ones who are. Rather than requiring the Benefits team to attempt to select a one-size-fits-all 529 option for employees in various states, a platform such as this provides education on all 529 plans and enables employees to choose a plan for themselves based on their state of residency and/or other preferences or factors. Employers can offer a one-time or ongoing match to employees’ 529 accounts. A contribution of any size can help employees get closer to their educational goals.
2. Rewards & Recognition
Employers who have existing rewards and recognition programs in place can incorporate college savings gift cards, redeemable into 529 plan accounts in denominations starting at $25. Beyond this, with or without a formal rewards and recognition program, employers can utilize these gift cards to recognize work anniversaries or other employee milestones or achievements. This approach can be coupled with educational sessions and/or written materials on saving for college (and saving for disability-related expenses with ABLE plans).
3. Corporate Gifts for New Parents
When employees welcome a new addition to their families, employers can provide an initial contribution to a 529 plan account together with an easy-to-understand guide to 529 plans. This is a great way to get an employee’s child off to a healthy financial start and to put parents’ minds at ease about beginning to save for one of the largest investments they will ever make –higher education.
4. Educational Sessions
Employers can offer one or more firm-wide educational sessions throughout the year on saving for college, perhaps during April (Financial Literacy Month), September (National College Savings Month) or October (Financial Planning Month). In addition to inviting college savings experts to deliver company-wide presentations, employers may also offer more focused presentations for employee resource or affinity groups that would likely have the greatest interest in learning how to prepare for educational costs.
No matter which approach is pursued, employees will benefit from learning about and accessing 529 plans through the workplace. Having saved for my own child’s education through a 529 college savings plan at work and having celebrated his debt-free graduation this past June, I know first-hand how valuable a benefit like this can be. America Saves Week is a fitting time for employers to consider various ways to introduce 529 plans as a powerful financial wellness benefit.