Attract and Retain Employees With Tuition Reimbursement Accounts (TRAs)

Employers are continuously evaluating the ROI from their employee benefit offerings, and to find balance in how they attract and retain employee talent. Tuition reimbursement is one of the tools that employers have used to boost perception of the benefits offering, yet do so at a low cost and drive strong ROI for their investment. While tuition reimbursement benefits have been used by employers of all sizes for many years, the financial crisis of late 2007-2009 and the more recent COVID-19 pandemic created what might be thought of as gap years for employer-sponsored tuition reimbursement as employers focused more on containing costs due to the challenging business environment during these periods. Given the current labor market challenges with attracting and retaining employees, we are seeing a resurgence in the interest and deployment of tuition reimbursement programs to help set themselves apart in the competition for talent.

Employers can structure their tuition reimbursement in different manners, but for sake of simplicity, consistency, and low cost, the benefit is making a comeback as the Tuition Reimbursement Account (TRA). Using TRAs, employers reimbursing educational expenses can help attract and retain employees, especially younger ones just starting their careers and seeking ways to advance. Employers are also broadening the spectrum of types of educational expenses open for reimbursement.

Earlier tuition programs often centered only on reimbursing employees studying for an MBA or advanced degree. Critics saw this as elitist because only a select few employees who already had undergraduate degrees were eligible for the benefit.

Today, employers are turning to a more inclusive version of TRA that all employees can access to enhance their career credentials, whether it is through college studies or specialized training programs that fit into more blue-collar careers.

Through TRAs, employers can offer employees a meaningful way to offset the rising costs of education and the resulting burden of debt, which appeals particularly to younger workers and reinforces the idea that the employer cares. Employers offering tuition reimbursement are reporting benefits of stronger recruitment and employee retention, improved employee engagement and productivity, and improved talent development in the near and long term.

How TRAs work

While employers can offer reimbursement in any amount, any reimbursements over the IRS-regulated annual limit of $5,250 become taxable to employees. As such, most employers fund the maximum reimbursement limit with their TRA at some level up to the $5,250 annual maximum. They then choose which eligible educational expenses they will reimburse, for example, tuition or program fees, books and other required learning materials, registration fees, lab fees and exam fees. Again, they can choose to fund education beyond that amount, but the employee is liable for paying taxes on the excess.

Employers can establish pre-requisites concerning how long the employee must be with the company to qualify for the program and how long the employee must stay with the company without having to pay back the benefit.

Employees can choose from the menu of options. They pay for tuition and other eligible expenses out of pocket and submit requests and supporting documentation for reimbursement.

Advantages of TRAs

TRAs are easy to establish and are tax-deductible up to the IRS pre-tax limit. The employer chooses what it will reimburse within IRS guidelines and decides how much each employee receives per year.

By investing in their employees’ education, employers can gain a substantial return on investment from having a more educated workforce with up-to-date skills that help them compete better in the marketplace. A recent two-year study conducted by the Lumina Foundation in cooperation with Cigna, found that tuition reimbursement programs have a 129% return on investment for employers.

The accounts are flexible and can be altered periodically to respond to employees’ needs, with multiple options offered on how they choose to spend the funds.

For employees, attaining a college degree, completing a certification program or obtaining new skills can create an upward career path and boost pay, creating loyalty and providing an incentive to stay put. In a recent study by EdAssist, 84% of employees cited tuition assistance as an important factor in their decision to join their companies, and that following the health plan, 71% of participants rated tuition assistance among the best benefits offered by their employers.

Beyond TRAs

Some employers have even gone beyond TRAs to offer education opportunities that attract and retain employees.

The Starbucks College Achievement Plan offers employees who work 20 hours a week or more the opportunity to earn a degree in 1 of 140 online bachelors programs at Arizona State University. ASU has expanded the program to other companies.

Amazon Career Choice partners with hundreds of schools in 14 countries to offer programs ranging from English language skills to college degrees and pays for tuition and books up to an annual maximum.

With younger workers increasingly starting careers burdened by student debt, TRAs offer employers an attractive means of helping them continue their education without incurring additional debt. For mid-career employees, TRAs offer incentives to refresh their skills or gain the new ones needed to keep up with industry trends. Simply, it is a win-win for employers and employees.

Kevin P. Robertson, HSA Bank, Chief Growth Officer