How Abbott paved the way for employers to offer a new student loan benefit

In 2016, healthcare firm Abbott Laboratories started brainstorming ways to better support employees with student loans. The benefit they came up with was innovative enough that they had to seek special permission from the federal government to carry it out.

The program, called Freedom 2 Save, allows employees to pay down their student loans while also saving for retirement. It served as a blueprint for a provision of the Secure 2.0 Act that took effect Jan. 1, 2024, and will allow other employers to roll out similar programs.

How Abbott developed its student loan benefit. Diego Martinez, divisional VP of benefits and wellness, told HR Brew his team came up with the idea for Freedom 2 Save after hearing from employees who were struggling to simultaneously manage student loan debt and save for retirement.

“People are paying their student loans, maybe they don’t have the cash available to contribute to the 401(k),” Martinez said. “We wanted to be able to give them the chance, that if they pay their student loans, we would save for them.”

Through Freedom 2 Save, which launched in 2018, Abbott contributes 5% to an employee’s 401(k) account annually if they put at least 2% of their salary toward paying down a “qualifying student loan.” Employees participating in the program don’t have to put any money into their 401(k) to receive the 5% match.

The benefit took several years to develop, as the company had to work with the federal government to ensure compliance. The Internal Revenue Service (IRS) issued a private letter ruling in May 2018 asserting that such a program did not violate the tax code, and thus was lawful.

In addition to seeking permission from the IRS, Martinez’s team had to explain what they were trying to do to their benefits administrators and legal team, given there wasn’t “any roadmap to follow” at the time, he said. One of the biggest challenges was figuring out how to securely track that employees were paying their student loans. Thankfully, Abbott had already partnered with Bright Horizons-owned EdAssist on student tuition assistance, and was able to work with them on Freedom 2 Save. Abbott also worked with its existing 401(k) recordkeeper, Alight, to sort through the administration and processes necessary to implement the new benefit.

While program costs were a consideration, Martinez said it wasn’t a primary driver of the conversations, given Abbott already offered a 401(k) match to all of its employees. “We offered it before, we offer it today,” he said. “We’re just giving you more options to get the match.”

Continuous engagement. Since Abbott launched Freedom 2 Save five years ago, more than 2,600 employees have enrolled in the program, according to Martinez. The company has contributed $5.5 million to participating employees’ retirement accounts, and Abbott has found those enrolled in Freedom 2 Save are 19% more likely to stay with the firm, compared to colleagues who aren’t enrolled in the program.

Abbott highlighted several examples of employees who have taken advantage of Freedom 2 Save in a pamphlet published in October. One participant, Kristin Abele, said she was able to pay off $30,000 in student loans much quicker than expected: “I took the money that I would have put toward my retirement and added it to my monthly student loan payments,” she explained. Another employee who participated, Nick Ankenbruck, noted the benefit could be particularly relevant for workers who get advanced degrees, like PhDs, given they start their careers later than most, and “you may be in your early 30s before you even start thinking about saving for your future.”

A provision of the SECURE 2.0 Act, which took effect at the beginning of 2024, will now allow more US employers to make 401(k) contributions based on employees’ student loan payments. “The fact that we could pave the way for companies to implement something like this, we’re super proud,” Martinez said.

Before launching such a program, Abbott recommends employers consider the administration costs and necessary resources—such as external vendors and funding—as well as whether their retirement plan administrator is capable of supporting the benefit.