Torn between paying student debt and saving for retirement, young employees have difficulties thinking long term. They turn to remedy the first and put off saving for their retirement, regardless of the amount of their debt, according to a new survey. Pharmaceutical company Abbott Laboratories aims to help their employees do both with a new benefit they are offering.

Abbott will pay an amount equivalent to 5% of an employee’s salary toward his or her 401(k) retirement plan when the employee contributes 2% of his or her salary to pay student loans, via its Freedom 2 Save program.

“We identified it as an issue and wanted to address it the right way as a company,” says Mary Moreland, Abbott’s divisional vice president of Compensation and Benefits. “[Employees with student debt] were missing out on years of 401(k) contribution. Every decade they wait [to save for retirement,] the amount they need to contribute doubles.”

The program does not have a cap and applies to employees in all fields of study. “They are doing the right thing by paying off their loans, so we, as a company, are going to help them save for their futures,” says Moreland.

Abbott hires around a thousand people under the age of 35 each year. Moreland says a third of them have bachelor degrees, a third masters degrees, and a third have PhD degrees.

Moreland says, out of the nearly 29,000 eligible employees, about 3,000 will take advantage of the program.

Research Economist Matthew Rutledge says he hopes this program will be something employees will use. “It is almost like they are taking a 5% raise,” he says. “I do not want to endorse any particular program, but it is interesting.”

Regardless of size

Their study found that younger workers with student loan, regardless of the size of the loan, were less likely to save for their retirement, says Rutledge, one of the authors of the recent study “Do Young Adults with Student Debt Save Less for Retirement?” for Boston College’s Center for Retirement Research. The study found that participation rate in a retirement program is around 61-to-62% for both university graduates with student debt and those without. This number is adjusted for differences such as their gender, race, parental background (income and education,) and college quality.

On the other hand, the researchers found that by age 30, those without debt had saved twice as much in towards their retirements as those with debt. “They're participating at the same rates, so the reason those without debt have twice as much saved by age 30 as those with debt is likely because they contributed twice as much, but we don't know that for sure,” says Rutledge.

He says that not everyone with debt is the same. “If they accumulated a lot of debt because they went to an elite private university, then they'll probably be fine because their studies set them on a good career path where they can earn a lot of money,” he says. Rutledge is more concerned about those that accumulated debt but not necessarily a good career path.

“That is the group that needs extra help,” he says.

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