IRS Guidelines on Student Loan Matching Payments for Employers

On Monday, August 19th, the IRS provided guidance to assist employers who sponsor a 401(k), 403(b), SIMPLE, or 457(b) retirement plan in implementing a program to provide matching contributions based upon employees’ qualified student loan payments (“QSLPs”).

The SECURE 2.0 Act of 2022 created the ability of employers to provide matching contributions on QSLPs for plan years beginning after December 31st, 2023. This provision was enacted to address that some workers decline to participate in their employer’s retirement plan because they lacked sufficient funds to contribute after satisfying their student loan repayment obligations. This provision of SECURE 2.0 makes it possible for those employees to at least take advantage of the matching contribution their employers offer toward wages their employees defer into the plan. However, many employers have hesitated to enact this type of program until the IRS specifies the applicable requirements.

According to IRS guidance, plan sponsors who want to provide these matching contributions must certify that the payments qualify as a QSLP. Specifically, the plan sponsor (or a third-party service provider) must receive the following information:

1. The amount of the loan payment.
2. The date of the loan payment.
3. Confirmation that the payment was made by the employee.
4. Confirmation that the payment was made toward a qualified education loan to pay for qualified higher education expenses of the employee, the employee’s spouse, or the employee’s dependent.
5. Proof the loan was incurred by the employee.

However, plan sponsors are not required to certify this information for each QSLP intended to be used as the basis for providing a matching contribution in the employee’s retirement plan account. Instead, plan sponsors may utilize an annual certification and rely upon an affirmative certification by the employee of the required information. For example, if an employee confirms in writing that he/she is making payments toward a qualified education loan for which the employee is legally obliged to pay, and the lender provides information regarding the amount of the loan and the date(s) the QSLPs were made, the plan sponsor can assume the employee (as opposed to another party) made the QSLP unless it has actual knowledge to the contrary.

Plan sponsors are allowed to establish any reasonable administrative procedures necessary to implement the QSLP match. However, an employer cannot impose stricter employment requirements on QSLP matches than it does for matches on funds employees voluntarily defer into the plan. In other words, a plan cannot require an employee to be employed throughout the plan year in order to be eligible for a QSLP match if that same requirement does not apply to employees entitled to receive matching contributions on the voluntary contributions they made to the plan. In addition, employers cannot restrict the types of QSLPs that are eligible for the match.

The full text of the IRS guidance is available, here.

For more information on how this may impact your plan directly please reach out to one of our OneDigital Retirement Plan Advisers today!

Investment advice offered through OneDigital Investment Advisors LLC.