We’ve been through quite a lot of activity in the corporate benefits department of late. Not only have you had to pay very close attention to the fees you and your employees are paying through the 401(k) plan, but you’ve also had to keep a sharp eye on changes in the healthcare arena. Funny thing: While you’ve been thinking about these other important issues, a benefit that is a little less flashy and a little less complicated is right under your corporate nose—the 529 college savings plan.
We know. These plans, designed to help beneficiaries pay for educational expenses, are not new. In recent years, though, they have gained acceptance (and investments) as states have tweaked them to better align with the needs and goals of potential savers. While we won't cover the parameters of each state’s plan in this space, we encourage you to learn more by visiting any number of informative websites on the topic.
For now, you may be interested to know that 529 plans can be used in a way that should appeal directly to the hearts, minds, and wallets of our readers who reside in the corporate benefits department. Winnie Sun, managing director of Sun Group Wealth Partners (www.sungroupwp.com), is an enthusiastic proponent of 529 plans and the benefits they can bring to your company, your employees—and even to the national economy. We spoke with her recently and asked her to elaborate.
“First, I think this is an important benefit to offer in these times when it seems that other benefit programs are being curtailed,” she says. “People really want to allow their children, their grandchildren, and other important people in their lives the opportunity to attend college. But with college costs increasing at a faster rate than inflation, it gets tougher for them to do that.”
Student debt burdensome for individuals, the nation
As college costs increase, the amount of debt students assume does, too. According to the Institute for College Access & Success, about two-thirds of students who were college seniors in 2010 graduated with student debt—$25,000 of it, on average. Recent news reports have told us that student debt has reached the trillion-dollar mark, far surpassing car loans and even credit card debt. The burden on the national economy is significant, and so is the burden on the former students.
The debt that seemed so manageable during the college years can quickly become a significant problem for graduates moving into a tough job market. Starting wages may not be enough to pay the costs of daily life and a large loan payment. And unlike other debt, student loans cannot be discharged through bankruptcy. A 1976 law eliminated the ability to discharge student loan debt that way, unless there is a finding of a “certainty of hopelessness,” something no one aspires to.
A Corporate 529 Plan allows employees to save for the higher education needs of the person or persons they name as beneficiaries. The money is contributed after tax, but the earnings accumulate tax-free. The money always belongs to the account holder, and he or she may take the money out at any time, simply paying the taxes (and often a 10 percent penalty tax) on the earnings portion of the account.
By setting up a Corporate 529 Plan for your employees, you are allowing them the ease of using payroll deductions to fund the plan, encouraging them to save. “Companies that offer a Corporate 529 Plan can rightfully include it as one reason they are employers of choice,” Sun says. “Providing this simple benefit costs very little to an employer. Setup is easy, enrollment can be done along with your other benefits, and from there it’s as easy as setting up the payroll deduction. The company need not offer any contributions, so the plan is entirely funded by voluntary employee contributions.”
529 plans can benefit the employee, too
When you communicate the new benefit to your employees, be sure to include information for those employees who may not have young people in their lives for whom they wish to provide college funding. “One interesting use of a 529 plan is for the further education of the account holder,” Sun tells us.
“Maybe you have employees who have not completed their undergraduate degree or who want to pursue a graduate degree. Account holders may save for their own education through the 529 plan and benefit from not only the tax-free earnings on the account, but on the systematic approach to saving that is so important to making progress,” she says.
If you decide to offer a Corporate 529 Plan, you will want to provide employees with access to investment advice. Sun recommends that you speak with your 401(k) advisor; he or she may be in a position to help or may point you in the direction of someone, like Sun, who works with these plans. Together, you can determine how and when to roll out the program, which investments to offer, and the best ways to market the plan to employees. “We do individual enrollments, small or large group meetings, and a variety of other avenues to publicize the program,” she says.
A way to connect with the next generation of employees
Today, even as the economy groans back to life, employees are still worried about meeting their expenses. Research from Public Agenda showed that, in 2011, 78 percent of parents are worried about paying for their children’s college, with more than half indicating they are very worried about it. The Corporate 529 Plan is a way you can help them defray their costs and, at the same time, let them know you appreciate the contributions they make to your business.
Sun believes offering a Corporate 529 Plan could also be a way of connecting to the next generation of employees. “When the student sets off to begin their college careers, the account holder and the beneficiary will know that the funds they are using came through a plan sponsored by your organization. You will have opportunities to communicate with the students on an ongoing basis.
“It seems like a small thing, but sponsoring a college savings plan could build goodwill and loyalty in those soon-to-be-educated students who will soon be in the workforce. Once they are educated and available, you may have first choice when you’re hiring.”
Remember that saving for college is a very important part of a family’s overall financial planning strategy. By sponsoring a Corporate 529 Plan, you can help answer at least one question for your employees: How can I pay for my kid’s college?