Matchmaker, Matchmaker, Make Me a Match … Based on my Student Loan Repayments

by Beth Nedrow

For the last several years, a hot topic for policymakers has been how to address the nation’s massive student loan debt. At the same time, the pressure remains to develop ways to encourage Americans to save for their own retirement. Legislation is in the works that proposes marrying those two goals.

Earlier this week, the U.S. House of Representatives Ways and Means Committee passed a bipartisan retirement reform bill, the Securing a Strong Retirement Act of 2021 (or “SECURE 2.0,” to reflect its role in following in the footsteps of the SECURE Act passed in December 2019). Among other provisions, SECURE 2.0 would permit employers to make matching contributions under a 401(k) plan, 403(b) plan or SIMPLE IRA with respect to “qualified student loan payments.” Such arrangements have been touted as a way to make sure employees burdened with student loans don’t miss out on employer retirement contributions since they may be unable to afford both student loan repayments and elective deferrals to a retirement plan.

A 2018 private letter ruling approved of an employer’s plan design that made nonelective employer contributions on behalf of participants who made minimum student loan repayments. But the PLR left many questions unanswered, and since a PLR only applies to the taxpayer who requested it, there has been continued pressure for a legislative solution. The proposed provisions in SECURE 2.0 would fill that gap and give employers a clear path to follow in providing this benefit.

It’s also worth remembering that employers desiring to help their employees manage student loan debt have another tool already at their disposal. Internal Revenue Code Section 127 authorizes “qualified educational assistance programs” under which employers can reimburse employees for up to $5,250 (annually) of student loan debt. These Section 127 programs are subject to nondiscrimination rules, but are not subject to ERISA or any qualified plan rules. Section 127 has been around since 1978 but was of limited utility. It was given new life in 2020, and again in 2021 when Congress extended the loan forgiveness provisions through 2025.