Gradvisor Partners with Gusto to Extend the Reach of 529 Benefits

Robo-adviser Gradvisor announced its partnership with HR platform Gusto on Feb. 7. The pairing allows the 40,000 small- and medium-sized businesses that use Gusto to use Gradvisor to allow employees to make customized 529 college savings plans.

A 529 plan is similar to a 401(k) or a health savings account, only its purpose is to accrue dollars specifically to pay for college. Employees who use this benefit get a post-tax deduction from their paycheck, which compounds over time in an account. They can use the money to pay for college for their children or their own continuing education.

The partnership between Gusto and Gradvisor is significant because currently large companies are twice as likely to offer the 529 benefit than small- or medium-sized companies, said Josh Reeves, CEO and co-founder of Gusto, in an email statement. But Gusto’s customers, mostly small- and medium-sized companies, expressed interest in it as well.

“We want to be the platform that evens the benefits playing field. Companies of any size should be able to take care of their employees and help them save for the future,” Reeves wrote. “Gusto, in partnering with Gradvisor, will help them do that.”

Marcos Cordero, co-founder and CEO of Gradvisor, said the benefit can be beneficial to both employer and employee. For instance, more employers today offer pet insurance than college savings plans. “It goes to show you how overlooked or underserved this specific need has been,” he said.

The percentage of companies offering 529 benefits increased from 6 percent to 11 percent from 2014-15, according to the Society for Human Resource Management. Cordero, who has been in the college savings business for five years, said he is optimistic about the continued rise of 529s in 2017 for a few reasons.

Gallup conducted a long-term study between 2001 and 2015 that found that more U.S. parents worry about not having enough money to pay for their kids’ college education than other Americans have about any other financial concern. Some 73 percent of parents with kids under the age of 18 expressed worry about funding for college versus 70 percent of low-income earners who worried about medical costs.

From a macro perspective, millennials are becoming parents who want to see their children go to college, and baby boomers are becoming grandparents who want their grandchildren to go to college. “Millennials are now becoming parents, so a lot of those benefits like ping pong tables and beer pong are transitioning to What are you offering for my family? What are you offering for my financial needs?” said Cordero.

Eighty-seven percent of millennials said their own student loan debt has motivated them to help their kids save more for college, according to Fidelity Investments “9^th Annual College Savings Indicator” study, which surveyed 2,470 families with children 18 years old and younger. Between 2012-15, the percentage of parents who planned on paying for all their children’s college costs increased from 20 percent to 35 percent, the same study found.

Cordero said he also sees a potential rise of the 529 in the workplace because of a piece of bipartisan legislation introduced last year. Introduced in April 2016 by Republican Richard Burr and Democrat Bob Casey, the Boost Saving for College Act would incentivize low- and middle-income earners to start saving for college through enhanced 529 benefits. The bill would allow employers to match up to $1,000 in pretax funds and would create tax advantages for employers offering 529 plans. Currently there are only tax advantages for the employees.

The bill has not been voted on yet, but over the past few years 529 bills have passed because of their bipartisan nature, said Cordero. Introducing the Boost Saving for College Act could be game changing, and motivate employers to offer employees the 529 plan.

Currently, one roadblock that is keeping employers from adopting the benefit is that employees in different states may require different 529 plans. For employers with a workforce that crosses multiple state lines, this could complicate the benefits administration process.

The Gradvisor platform addresses this by including the 529 plans from every state to simplify the process for the employer, said Cordero. The partnership with Gusto will streamline the process by successfully integrating the 529 into benefits packages, he added. “A lot of times with organizations that already have their basic benefits, like health insurance and a 401(k), [college saving] is the next level to help employees.”