Thinking About Financial Wellness Benefits for Employees? Your Questions, Answered

business financial planning

What do you need to know about financial wellness benefits? Two of our experts have some important information.

Did you know that employees' financial stress can impact your business? Thirty-five percent of employees say they're distracted by their finances at work, which can hurt their productivity. Thankfully, financial wellness benefits — from financial education, to student loan repayment, to early pay programs and beyond — are becoming increasingly popular with employers as a way to help boost both performance and retention.

In our recent Workplace Spotlight webinar, we discussed these trends with David Aronson, CEO of the student loan repayment platform Peanut Butter, and Bill Doherty, vice president of participant education in ADP® Retirement Services. There's a lot to consider when introducing new benefits, so read on to learn about strategies for introducing financial wellness to your organization, plus get into the details of student loan assistance and more.

The savings needed for a 401(k), health care and college can easily reach over $1 million. How do employees get there?

No doubt, saving for retirement, future health care costs and education is a tall order. Using tools available through existing programs can be a great first step. Most 401(k) providers offer free financial planning tools, calculators and educational materials, which may or may not have fees associated. A financial planner is also an excellent resource to help better understand employees' individual goals and savings strategy.

What kinds of financial wellness programs can employers offer workers who are not highly compensated, struggle with debt, or are in serious need of financial education?

Financial literacy can be a huge barrier for employees of all demographics. Many benefit providers, including ADP Retirement Services, may have financial wellness materials, videos and presentations available to employees at no cost. It could be worth a call to your benefits vendors to see what they have available. There are also many third-party financial wellness solutions available on ADP Marketplace, ADP's digital HR storefront, that contain educational content, as well as solutions that offer early access to earned wages, which can be highly impactful for hourly, lower-wage employees.

How can highly decentralized companies educate employees on financial wellness?

A decentralized workforce can be difficult at times, but technology is helping deliver financial wellness education to more people in a more convenient — and cost-effective — manner. Most financial wellness education providers offer presentations virtually or have a video library that's accessible on demand. Check with your benefit providers for options.

How many employers currently offer student loan assistance?

Student loan repayment can help companies differentiate themselves and compete for talent. The unemployment rate of college-educated talent continues to decline, making it more challenging to recruit new hires. Today, 49 out of 50 college-educated workers already have a job.

In 2018, the Society for Human Resource Management (SHRM) reported that 4 percent of companies were offering student loan repayment, and in 2019 reported that 8 percent of employers (or one in 12) now offer the benefit, an increase of 100 percent year-over-year.

However, other sources show that nearly four times more employers are planning to offer some form of student loan assistance. According to the Employee Benefit Research Institute's 2018 Employer Financial Wellbeing Survey, 32 percent of employers offer or plan to offer some form of student loan debt relief, ranging from refinancing programs to employer-paid student loan repayment, and 68 percent of employers are examining existing employee benefit data and reassessing financial wellness needs.

The answer above is adapted from Peanut Butter's post, "Dramatic increases in employers offering Student Loan Assistance".

How do employers typically define eligibility for student loan repayment?

Most employers couch eligibility on the medical plan. In other words, if you're eligible for health insurance, you're eligible for student loan repayment.

With the Peanut Butter loan assistance solutions available on ADP Marketplace (available for ADP Vantage HCM®, ADP Workforce Now® and RUN Powered by ADP®), employers define eligibility once, then the app can automatically invite newly eligible employees to enroll and automatically suspend employees who are no longer with the company.

In the example above, the employer could define eligibility using ADP Worker Status = Active and ADP Worker Type = Full Time or Part Time 32. Based on this definition of eligibility, a newly hired full-time employee would be automatically invited to enroll in student loan repayment, and an employee who moves from Part Time 32 to Part Time 20 would automatically be suspended from student loan repayment.

Student loan repayment is considered compensation by the IRS, or taxable income to employees, which definitely creates an advantage here. Companies can choose to offer the benefit to some and not others. Unlike 401(k) plans, student loan repayment is not subject to ERISA and thus does not require annual discrimination testing or balancing.

What are the tax implications of student loan repayment?

Student loan repayment contributions are recorded on payroll as imputed income, which means the employer will be withheld for payroll taxes (e.g., FICA, FUTA, SUTA) and the employee will be withheld for income taxes.

For employees, the decision to enroll in student loan repayment is just like when they're offered a raise — would you like extra compensation even though you'll owe taxes on it? Yes, please.

With the bi-directional Peanut Butter app on ADP Marketplace, once an employee enrolls in student loan repayment, the app will automatically apply the imputed income entry to the employee's paycheck.

For employers, student loan repayment is tax-deductible as a business expense, but companies aren't offering the benefit simply for tax advantages. Instead, they're doing it to stand out in the competitive market for talent, and for the financial reward they often see from offering student loan repayment, like lower hiring costs and reduced costs of employee turnover.

Learn more about financial wellness benefits

Launch this 1-hour webinar: How Financial Wellness Can Lead to Higher Employee Retention and Less Stress