Retirement Plan Matching Contributions on Student Loan Repayments
In August 2024, the IRS issued Notice 2024-63 (the “Notice”) which addresses the SECURE 2.0 Act provision permitting retirement plan matching contributions on student loan repayments. The Notice is effective January 1, 2025 for calendar year plans and applies to 401(k) plans, 403(b) plans, governmental 457(b) plans and SIMPLE IRAs. This article provides a general summary of the Notice.
The student loan repayment match is a welcome provision for employers seeking to recruit talented individuals with student loan debt. For the employees, the provision allows them to service their student loan debt and build a retirement plan balance. Student loan debt often cuts into funds that otherwise would be contributed to 401(k) and similar plans. The student loan match provision helps mitigate the lost retirement savings opportunity that results from servicing student loan debt.
Overview
The Setting Every Community Up for Retirement Enhancement Act (“SECURE 2.0 Act”) permits a plan to treat Qualified Student Loan Payments (“QSLPs”) as if the payments are elective deferrals for purposes of receiving matching contributions. Pursuant to the Notice, the employee who makes the loan payment must have a legal obligation to make the payment under the terms of the loan as the primary borrower or a co-signer, but not as a guarantor unless the borrower is in default on the loan. In order to be eligible for matching contributions, the loan payments cannot exceed the dollar limitation in place for the year ($23,500 for 2025) or, if less, the employee’s compensation for the year. All employees must be eligible to receive the QSLP match. However, under the disaggregation rules, certain groups, such as union covered employees, may be excluded. The QSLP match must be limited to loan repayments made during the applicable plan year. The frequency of the match can be different than the match on deferrals, meaning the QSLP match may be periodic or annual even if the matching contribution on deferrals is made on a different cycle, such as the employer’s payroll cycle.
Employee Certification
The employee seeking matching contributions to the plan for the employee’s QSLP must certify that the payments are qualified payments. The certification may be required for each payment, or an annual certification may be made. To meet the certification requirements, the employee must provide the following:
- The amount of the loan repayment and the date of the repayment(s);
- A statement that payment was made by the employee;
- That the loan being repaid is a qualified education loan for higher education expenses of the employee, the employee’s spouse or the employee’s dependent; and
- That the loan was incurred by the employee.
Procedures
The Notice permits the plan to establish procedures to assist in the administration of the QSLP match. For example, the plan may establish a deadline for an employee’s request for a QSLP match. However, the deadline must be reasonable, such as within three months of the close of the plan year.
In addition to the above, a plan may rely on the employee’s certification without supporting verification. However, the procedures may be established to require verification, provided the requirements are reasonable.
Non-Discrimination Testing
The QSLP match must be available to all eligible participants.
In addition, the actual deferral percentage test, if applicable, can be applied by including employees who receive the QSLP match with the entire plan population, which includes elective deferrals and QSLPs.
As an alternative, the plan can apply a separate test for employees who receive the QSLP match. Under the separate test alternative, one of two methods may be used. Under the first method all employees who make QSLPs, regardless of whether they also have elective deferrals for the year are included in the test. Accordingly, employees who receive the QSLP match have their elective deferrals also included in the separate test. Employees with no QSLP matching contributions are only included in the general or main test and not the separate test. The employees for whom a QSLP match is made are excluded from the main or general test.
Under the second method, the employees who receive QSLP matching contributions are tested separately. However, the elective deferrals of employees who receive QSLP matching contributions and who make elective deferral contributions are included in the main test and not the separate test. In other words, if the employee makes both QSLPs and elective deferrals, the QSLPs and elective deferrals are included in the general test and not the separate test.
It should also be noted that employees who participate in a safe-harbor plan, exempt from the actual deferral test, may receive QSLP matching contributions. Furthermore, the QSLP provision may be added to the safe-harbor plan mid-year provided the employee receives the safe-harbor notice.
Next Steps
The QSLP matching contribution feature is an optional plan provision. A plan sponsor who wishes to implement the QSLP matching contribution provision will need to amend their plan and address the administrative operation of the QSLP match. Several of the large recordkeepers offer QSLP match administration services. Plan sponsors should also consider any policy provisions and implement a written policy.
Finally, the SECURE 2.0 Act provides that the IRS will issue regulations and promulgate model plan amendments regarding QSLP matching contributions. For this reason, we recommend plan sponsors who wish to implement the QSLP match, do so through written plan procedures and implement the QSLP match amendment once the IRS model amendment is available.
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