Tag Archives: student loans

Great West Life pilots employer RRSP match for student loans

Canadians enter the workforce with an average of nearly $27,000 in student loan debt. Such high amounts of debt typically take 10 years to repay, which means many delay saving for traditional life goals like home ownership, starting a family or retirement.

“So often it’s a choice between paying down student debt or making contributions to a retirement plan, but there is only so much wallet share available and student loans have to be paid off first, “ says Great-West Life Senior VP of Group Customer Experience and Marketing Brad Fedorchuk.

That’s why in January 2018 GWL is piloting a first in Canada — a voluntary retirement and savings program with select invited employers in their distribution network and their eligible employees. As participating members pay down their Canadian and provincial government student  loans, they will receive an employer-matched contribution to their group retirement savings plan. The goal of the program is to allow members to save for retirement while they focus on paying down their student debt.

Employees will send documentation verifying their outstanding student loan to GWL plus quarterly statements confirming payments have been made. “Once we have verification of student debt repayment, we’ll create a report for the employer so employer matching RRSP payments can be made, Fedorchuk says.

The level of matching (i.e. dollar for dollar; 50 cents for every dollar) and any annual cap on matching will be based on the provisions of the existing group RRSP program. He continues, “Details still have to be worked out, but we envisage this program as a self-selected alternative to group RRSP matching for employees paying down student loans.”

With Americans owing over $1.45 trillion in student loan debt, spread out among about 44 million borrowers, student debt repayment is emerging as one of the most popular new employee benefits. Some U.S. employers also assist students to pay off loans faster by helping them to consolidate or refinance their loans at a lower interest rate.

Although only 4% of U.S. companies offered student debt pay as down a benefit at the end of 2016, according to the Society for Human Resource Management, and employees are typically responsible for income taxes on the assistance received, it is expected that this percentage will grow. Fidelity, PwC, Aetna, Penguin Random House, Nvidia, First Republic and Staples are notable examples of early adopters, Forbes reports.

One advantage of GWL’s Canadian program is that by matching student debt repayments in the group RRSP, contributions are tax-sheltered. Also, subject to any limitations in the group RRSP plan design, employees can withdraw funds to participate in the Home Buyers’ Plan to buy or build a qualifying home for themselves or for a related person with a disability.

Fedorchuk acknowledges that it may be a challenge to encourage students to continue saving in the group RRSP when their student loans are paid off. Nevertheless, he believes that the pool of money accumulated in their RRSPs that they would not have had absent this program will be compelling. “Hopefully we can incent employees to continue contributing and receiving the match instead of shifting their monthly payments into ‘fun money,’ he says.

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Written by Sheryl Smolkin
Sheryl Smolkin LLB., LLM is a retired pension lawyer and President of Sheryl Smolkin & Associates Ltd. For over a decade, she has enjoyed a successful encore career as a freelance writer specializing in retirement, employee benefits and workplace issues. Sheryl and her husband Joel are empty-nesters, residing in Toronto with their cockapoo Rufus.

May 18: Best from the blogosphere

By Sheryl Smolkin

Over the last few weeks, the Globe & Mail has featured an interesting series on debt, and how it is affecting both individuals and the economy. If you haven’t been following it, take a look at some of the stories below:

A taste for risk: Looking into Canada’s household debt

In deep: The high risks of Canada’s growing addiction to debt

Are you drowning in debt? See how you compare to other Canadians

Laurie Campbell: Credit Canada CEO shatters debt myths

I particularly like Rob Carrick’s article There’s no such thing as good debt. Mortgages, investment loans and student loans have traditionally been characterized as “good” debt. Carrick agrees borrowing for each of these purposes can be a rational thing to do and you may end up wealthier as a result. But he concludes there are too many pitfalls today for any one of them to qualify as a no-brainer financial decision.

Big Cajun Man (Alan Whitton) on the Canadian Personal Finance lists several articles about the evils of debt among his personal favourites. In 2008, he wrote Debt is like Fat. He says that just like his weight gain occurred a little at a time over 14 years, if you are not careful, debt build up can occur slowly without your noticing it.

If you are facing a mountain of debt and don’t know where to start, take a look at How I Paid Off $30,000 of Debt in Two Years, The Blog Post I’ve Been Waiting to Write  and What a Year of Being Debt-Free Has Taught Me  by Cait Flanders, who blogs at Blonde on a Budget.

In 2013, Krystal Yee at Give me back my five bucks wrote  How do you fight debt fatigue?. Debt fatigue is a mental state that can happen when you’ve been in debt for so long that you think you’ll never dig yourself out of the hole you’ve created for yourself. She quotes financial expert Gail Vaz-Oxlade who often tells people on her television shows to try and make a plan to get out of debt in 36 months or less – because anything more than three years, and you’ll likely suffer from some form of debt fatigue.

And finally, in a guest post on the Canadian Finance blog, Jim Yih from Retire Happy wrote that Debt Can Be A Problem For The Baby Boomers’ Retirement Plans. He says baby boomers who are getting ready for retirement need to get serious about planning for the best years of their lives.  Part of getting serious is addressing debt head on and taking the necessary steps to develop good habits around debt. His five tips on how boomers can deal with the debt epidemic are: stop overspending; increase your income; get support; focus on you before your kids; and, take one step at a time.

Do you follow blogs with terrific ideas for saving money that haven’t been mentioned in our weekly “Best from the blogosphere?” Share the information with us on http://wp.me/P1YR2T-JR and your name will be entered in a quarterly draw for a gift card.