Record inflation has forced many Americans to cut back on their retirement savings. Workers in every age group, from those in their twenties to those in their sixties and beyond, worry about their ability to save enough for retirement.
Student loan debt is only exacerbating this crisis. Thankfully, Congress is considering a measure that would offer many of the nations 42.8 million federal student loan borrowers some relief.
The SECURE Act 2.0 would, among other things, mirror a pioneering program Abbott launched in 2018 in which employers match a percentage of the payments employees make toward their student loans with contributions to their retirement accounts.
Its a great way to simultaneously address the nations student debt and retirement savings challengesand it deserves to be at the top of Congresss year-end agenda to help drive down student debt and increase retirement savings.
According to the Federal Reserve, total student debt has soared to $1.8 trillion. That averages out to nearly $38,000 per borrower. Borrowers can expect to spend between 10 to 30 years repaying these debts.
Student debt also spans generations. Around 36% of older Gen-Zers have student loan debtand nearly one-third of millennials do. Even the Baby Boomers collectively owe billions of dollars for schooling they may have completed decades ago.
This debt is bad enough for borrowers financial situations. By further preventing them from saving even modest amounts for retirement, we deprive them of free money from their employers when they could most use it.
Most employers offering a 401(k) or other retirement plans match a portion of the contributions employees make to their accounts. One common approach is to match 50% of an employees contribution to their 401(k), up to 6% of their salary. Under that system, an employee making $60,000 who contributes 6%or $3,600 a year would receive an additional $1,800 from their employer in their retirement account.
An extra $5,400 in retirement savings may not sound like a princely fortunebut it can add up, thanks to the miracle of compound interest. After 30 years of such contributions, and assuming a 5% investment return, a person would have more than $382,000about $215,000 more than he or she actually contributed.
Unfortunately, many employees leave that free money on the table. A fifth of workers dont take advantage of their employers matching program. Student loan obligations can be a big reason why.
This problem inspired us at Abbott to launch our Freedom 2 Save program in 2018but we had to seek permission from the IRS to establish it. SECURE 2.0 would make programs like ours legal for other employers with no special dispensation required.
If companies start implementing these programs, then workers would no longer have to make the difficult choice between paying off student debt and saving for retirement.
By allowing employers to seed their employees retirement accounts when they pay their student loans, Congress could boost the finances of countless Americans today and in the long term. The House passed the SECURE Act 2.0 by an overwhelming bipartisan margin earlier this year. Now the onus is on the Senate to follow suit.
Mary Moreland is the executive vice president of human resources at Abbott.
The opinions expressed in Fortune.com commentary pieces are solely the views of their authors and do not necessarily reflect the opinions and beliefs of Fortune.
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