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Global advisory, broking, and solutions firm WTW is pitching a new benefit that would allow employees to direct money from their employers toward a wider array of financial perks beyond retirement, including student loan repayments and health savings accounts.
This arrangement is possible thanks to a private letter ruling from the Internal Revenue Service (IRS) that WTW helped secure for an employer it advised. The organization, which is unnamed for now, wanted to give employees the choice to put a percentage of funds that would have otherwise gone into a 401(k) retirement plan toward other types of accounts, including an educational assistance program for student loan payments or a health savings account. If an employee elected not to allocate this share of the employer contribution into one of these alternative accounts, it would automatically go to their 401(k) account.
The IRS gave this company permission to restructure their benefits this way in a letter dated Aug. 23. WTW is now advising other employers who would like to do the same, according to Chris West, defined contribution strategy leader.
Giving workers more choices. With this new program, employees “get to make the decisions based on their unique circumstances,” West said. Many Americans carry student loan debt, for example, and in recent years more employers have started to offer benefits with the goal of helping pay them down. With this program, an employee might choose to put their employer contribution toward student loan debt, and redirect money they were saving for that toward other debt, West said.
“This could really also be a great opportunity from a financial resilience perspective for employees…[they’re] making the choice on where [they] want that contribution to go,” she added.
WTW has been having conversations with dozens of clients since this private letter ruling who are interested in making their defined contribution plans more flexible, West said. She added that the design of each plan will look different depending on the individual employer, and an organization interested in implementing something like this would likely need to receive their own private letter ruling from the IRS, as well as work with their counsel on the decision.
Prioritizing flexibility. Workers are already struggling to save for retirement, and in recent years total rewards leaders have started to get more creative with their benefits to help employees build financial security, whether through helping them manage medical debt or start emergency savings accounts. A provision of the Secure 2.0 Act that took effect this year allows employers to make matching 401(k) contributions based on their employees’ student loan payments, and was originally pioneered by Abbott Laboratories, which received an IRS private letter ruling to offer this benefit starting in 2018.
Ultimately, West said WTW believes the new defined contribution program reflected in this recent ruling is “going to be a meaningful step…with respect to giving employees the choice and flexibility to allocate their employer dollars where it makes the most sense for them.”