Help Boost Client Outcomes with Debt Coaching

A new PSCA survey finds many Millennial employees say student debt keeps them from saving for retirement—and even older workers widely carry at least some student debt. 

The Plan Sponsor Council of America (PSCA) revealed new findings from its study assessing student loan debt and plan sponsors’ responses to the perceived notion that student debt affects employees’ participation in company retirement plans.

Titled “The Impact of Student Loan Debt on Defined Contribution Retirement Plan Participation: Plan Sponsor Perspective,” the study surveyed PSCA organizational members in April 2016. The respondents’ organizations ranged in size from fewer than 50 plan participants to more than 5,000.

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Probably not a big surprise to advisers or HR professionals, PSCA finds many Millennial employees say student debt keeps them from saving for retirement. More than a quarter (26.9%) of employers “reported a moderate degree of employees citing student loan debt as a barrier to saving,” while 8.9% cited a high degree. Another quarter (25.3%) cited a low degree of interference with retirement planning caused by student loan debt.

Overall, a sizable majority (62.3%) of employers reported that more than half of their employees had a four-year college degree or higher, and 30.1% said between 10% and 50% of their employees were at that education level.  According to the Pew Research Center, 69% of students graduating in 2011-12 borrowed money to finance their college education, compared to 49% of students graduating in 1992-93.

PSCA finds these numbers are driving a shift in employer thinking, albeit a slow shift, with many employers taking a wait-and-see approach and allowing their peers or advisers to show what strategies might work best. 

“While many companies offer tuition reimbursement, a small number now offer student loan repayment programs,” PSCA explains. “Tuition repayment plans continue to be popular with an overwhelming majority (70.1%) offering these benefits. Although only 1.4% offer student loan repayment plans, 11.5% are considering it and nearly 30% are undecided.”

NEXT: Employers warming to the idea of student loan support 

And even when employers opt not to take direct action, many are still communicating about this issue. For example, PSCA finds nearly one-fourth of large companies “address student loan debt with employees in some way.” Approaches vary widely but the main themes generally involve trying to help employees understand that paying down debt does not have to be a haphazard or painful experience. 

The survey results come as multiple national studies by academic organizations show that student loan debt has reached record levels. According to EdVisors, the class of 2015 graduated with an average of $35,051 in student loan debt. Interestingly, analyses have also emerged warning folks that paying down this debt quicker is not always better for the bottom line: HelloWallet built an illustrative model to examine the impact of the decision to pay off student loans ahead of schedule and found there are very few circumstances in which paying down student loans ahead of schedule leads to a higher net wealth at retirement, particularly if a worker opts to forgo an employer match on retirement savings in order to prioritize paying down the debt.

As PSCA explains, the key is getting people to invest in their retirement while paying down student debt at the same time. This won’t necessarily be easy given weakness in the labor markets and stagnant wages, but it’s generally a better strategy in the long run than focusing just on one or the other.

“Policy makers need to be aware that the cost of higher education is impacting the ability of a generation to save for retirement,” concludes Tony Verheyen, executive director of PSCA. 

Additional research findings are at www.psca.org

High Court Decision Could Have Implications for ERISA Litigation

The decision was already cited in the Supreme Court's order regarding the Verizon pension risk transfer lawsuit.

A U.S Supreme Court decision in Spokeo Inc. v. Robins could have implications for Employee Retirement Income Security Act (ERISA) litigation.

The decision was already referenced in an order by the Supreme Court remanding the Verizon pension risk transfer lawsuit back to an appellate court. And, alerts from law firms suggest the decision will impact other ERISA litigation.

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The Spokeo suit applies to the Fair Credit Reporting Act of 1970 (FCRA). Spokeo, Inc., an alleged consumer reporting agency, operates a “people search engine,” which searches a wide spectrum of databases to gather and provide personal information about individuals to a variety of users, including employers wanting to evaluate prospective employees. After Thomas Robins discovered that his Spokeo-generated profile contained inaccurate information, he filed a federal class-action complaint against Spokeo, alleging that the company willfully failed to comply with the FCRA’s requirements.

A district court dismissed Robins’ complaint, holding that he had not properly pleaded injury in fact as required by Article III. The 9th U.S. Circuit Court of Appeals reversed. Based on Robins’ allegation that “Spokeo violated his statutory rights” and the fact that Robins’ “personal interests in the handling of his credit information are individualized,” the court held that Robins had adequately alleged an injury in fact.

NEXT: Additional review for determining injury

The Supreme Court remanded the case back to the 9th Circuit for review, finding that its Article III analysis was incomplete. It said the injury in fact requirement requires a plaintiff to show that he or she suffered “an invasion of a legally protected interest” that is “concrete and particularized” and “actual or imminent, not conjectural or hypothetical.”  The court further noted that a “concrete” injury need not be a “tangible” injury. It added that, Article III standing requires a concrete injury even in the context of a statutory violation; however, this does not mean that the risk of real harm cannot satisfy that requirement.

A blog by Seyfarth Shaw LLP attorney Mark Casciari says, “Add to these preconditions the Supreme Court’s Twombly holding, which said that any federal complaint, as a matter of federal civil procedure, must state a “plausible” claim, beyond speculation and conclusion, in order to be considered by a federal judge.”

Casciari notes that “Some ERISA litigation claims obviously involve concrete injuries. These include claims for denial of benefits that plan terms allow, plan investment losses resulting from a fiduciary breach and detrimental reliance on fiduciary misrepresentations. Other ERISA litigation claims less obviously involve concrete injuries. These include claims challenging a denial to provide plan documents in a timely fashion, claims challenging notice of plan amendments that arguably violate ERISA section 204(h), claims challenging a fiduciary breach attendant to an investment of plan assets in an overfunded defined pension plan, and claims challenging a failure to fund a defined benefit plan where the plaintiff has suffered no benefit denial.”

In the Verizon case, employees whose pension benefits were not transferred to an insurer had their claims of harm dismissed for lack of standing because they did not prove an injury in fact.

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