Some members of the high school class of 2026 will take their next steps in the world a little more financially secure, thanks to a new benefits from insurance giant Unum.
For Unum employees adopting or giving birth in 2008 and beyond, the company will contribute $700 to a 529 college savings plan. All U.S. employees of Unum and Colonial Life are eligible, and new parents must open the plan within one year to receive the contribution.
Company execs were inspired by Harold Alfond, a philanthropist from Maine who, when he died in 2007, bequeathed several million dollars to establish a foundation that would give $500 to every child in the state. Unum, which is headquartered in Maine, decided to replicate the altruistic gesture among its 9,000 employees. Unum settled on the $700 contribution because the amount is taxable, and after taxes it will approximately equal Alfond's $500 gift.
As college costs rise and the economy continues to struggle, the 529 benefit is one that provides needed help to employees and sets Unum apart from other employers.
"In this tight labor market, employers of all sizes are looking at unique benefits we can provide to attract and retain a quality workforce," says Eileen Farrar, Unum's senior vice president of HR. "Niche benefits such as this 529 contribution highlight the importance of addressing needs of our diverse working population - in this case, working parents."
Joe Foley, Unum senior vice president, says the value of the benefit is not lost on the company's working parents.
"Employees are pretty excited about it," he says. "But the most important thing is not our contribution, but that it inspires others to contribute as well. People don't necessarily set up 529s at the child's birth - maybe when the child is in grammar school or later, but we're trying to change that. The general sense we're getting from employees is, 'You made me stop and think about this.'"
New dad Jarrod Smith, a 29-year-old Unum employee, says, "My wife is a financial adviser and talks to clients every day about the importance of starting early to save for their children's education. Even though it seems like a lifetime before our daughter will enroll in college, now is the best time to start planning for this expense. We feel fortunate that Unum is taking the initiative to jumpstart this investment for our child."
Firsthand hints
For employers considering a similar benefit, Foley has several nuggets of advice.
"Of course the first thing is to consider how many births you're going to have, so you'll know how much it'll cost you," he says. "We have about 300 births per year, with about 9,000 employees. Most employers could estimate this pretty easily using data from their health plan."
Foley also urges employers to consider the tax implications. "It can be a bit of a gray area, but the position we took was that this contribution was taxable."
He says that Unum will revisit the benefit in the future with an eye toward expanding it.
"We'll take a wait-and-see approach. I'm sure at some point, $500 won't be an appropriate amount anymore, but we'll consider that later."
Meanwhile, he says, "it's a pretty simple benefit that can lead to bigger things for employees and their families. It's also very cost-effective, so I would encourage employers to take a look at it."
The Top 7 benefits of 529 plans
1. Federal tax benefits
Contributions grow tax-deferred, and distributions to pay for college are tax-free.
2. State tax benefits
Deductions vary from state to state, like an upfront deduction for contributions or income exemption on withdrawals. Information about specific benefits for state residents is available at www.savingforcollege.com/529_plan_details.
3. Donor control of funds
Parents need only decide which state's 529 plan to use, complete a simple enrollment form and make contributions (or sign up for automatic deposits), and that's it. It's as simple as that. Plan assets are managed by the state treasurer's office or an outside investment company.
4. Low maintenance
Parents need only decide which state's 529 plan to use, complete a simple enrollment form and make contributions (or sign up for automatic deposits) and that's it. It's as simple as that. Plan assets are managed by the state treasurer's office or an outside investment company.
5. Simplified tax reporting
Parents do not receive a Form 1099 to report taxable or nontaxable earnings until the year they begin making withdrawals.
6. Flexibility
Donors may move investments to a different option in a 529 or rollover their account to a different state's plan, provided no such rollover has occurred in the last 12 months.
7. Substantial deposits allowed
Everyone is eligible to take advantage of a 529 plan, and each beneficiary is allowed $300,000 in deposits, with no income limits or age restrictions.
Source: Savingforcollege.com
