New company benefit: A 529 match
A California-based company will match employees' contributions to college savings plans. Could this catch on?
This post comes from AnnaMaria Andriotis at partner site MarketWatch.
In what the company is calling a first, Dun & Bradstreet Credibility, which provides credit-building services mostly to small businesses, announced this week a "multiple match" program for employees who contribute to a 529 college savings plan.
The company will match dollar for dollar up to $2,500 per year in total contributions made by salaried employees and up to $1,000 per year for hourly workers, beginning with any contributions made in 2012. (The 529 matching payments are taxable, but the company says it will contribute enough additional money to cover the taxes itself, so that employees wind up with the full dollar-for-dollar value.)
While experts say it's too soon to tell whether the practice will spread, they do say companies are increasingly searching for creative ways to attract talent. And at least one state government has been trying to incentivize employers to offer 529 matches. Illinois has offered employers a tax credit if they match employees' contributions to an in-state 529 college savings plan.
"On an isolated basis, we might see more and more companies do this," says Joe Hurley, the founder of Savingforcollege.com, which tracks 529 plans.
The new perk comes as many companies are restoring 401k matches after suspending or cutting them during the recession. Nearly 96% of companies with 401k plans that have the capability of making a match were doing so in 2011, up from 91% in 2010, according to survey results released in October by the nonprofit Plan Sponsor Council of America.
Also, some companies recently started offering free 401k advice services, where their employees can speak with representatives from the companies that administer their retirement plans.
Still, D&B Credibility's new 529 match does come with a catch: The Malibu, Calif.-headquartered company is offering the perk only through one state plan: Nevada's Putnam 529 for America, run by Putnam Investments. D&B Credibility's roughly 600 employees aren't based in Nevada, but are scattered across Arizona, California, Pennsylvania, New Jersey and North Carolina. CEO Jeff Stibel says the company chose this plan partly because it appeared to have the best overall benefits.
Another issue, say advisers, is that the appeal of free money could lure many parents into the plan before they've had a chance to shop around and compare it with other 529s.
For instance, this Nevada plan is an adviser-sold plan, which comes with higher fees than the average direct-sold plan, which parents sign up for on their own. (It had an average expense ratio of 1.11% in the third quarter, in line with adviser-sold plans, but higher than direct-sold plans, which averaged 0.56%, according to the Financial Research Corp.) It received an overall "neutral" rating in this year's Morningstar 529 rankings, suggesting its performance and fees were "middling."
Parents who shop around could find a lower-cost, better-performing plan where the savings and higher returns could outweigh the free money. (For its part, D&B Credibility says parents can open the Nevada plan to tap into the match, while also investing in other 529 plans.)
If this practice catches on, employees will also have to consider the tax implications. Many states offer tax deductions and other perks for investing in a 529 plan, but in some cases employees who choose a plan outside of their state of residence could risk losing out on those tax perks.
That said, the D&B Credibility match is bigger than the tax benefits parents would get if they stayed with their own state's plan. And its employees have little to lose: California and New Jersey don't offer tax benefits, while Arizona and Pennsylvania residents can claim their state tax deduction even if they invest in another state's 529. North Carolina offers the deduction only for investing in-state, but experts say it doesn't measure up to the dollar-for-dollar match the company is offering.
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