Money’s Too Tight to Mention…But Maybe a Student Loan Match Would Help

by Lyn Domenick

By now you have probably seen countless summaries of the recently enacted legislation that includes what is commonly known as SECURE 2.0. One of the new features that has been brewing for a while is the concept of a 401(k) plan match based on qualified student loan payments for its eligible employees. Because this is effective January 1, 2024, interested plan sponsors should begin now evaluating the merits of adding such a program. The student loan match provision permits (but does not require) a plan to contribute matching contributions based on the amount of qualified student loan payments made by its employees who are otherwise eligible to make deferrals under the 401(k) plan. The plan must match qualified student loan payments on the same basis as elective deferrals under the plan, including the application of any plan or IRS limits on the amount that is matched and on the match itself. If a participant is making both elective deferrals and paying on a student loan, the matching formula would be applied to both (subject to applicable limits). Eligible participants would self-certify that they are making qualified student loan payments, which avoids the need for the sponsor to verify payment. Student loan matching contributions may also be implemented in a 403(b) plan or governmental 457(b) plan.

Depending on the utilization of the student loan match, as well as whether some participants stop making deferrals and choose to instead receive the match based on their student loan payments, nondiscrimination testing could be impacted. To help with this issue, SECURE 2.0 permits a plan to separately test the employees who receive the student loan match.

The IRS has been directed to issue regulations for purposes of implementing a qualified student loan matching program in a plan, including guidelines that will permit a sponsor to contribute matching contributions for qualified loan payments at a different frequency than regular matching contributions. For example, if a plan matches deferrals on a payroll period basis, the regulations might provide that a plan could match loan payments on a monthly basis (since many student loans are repaid on a monthly basis). The details will be spelled out in the forthcoming guidance. The regulations are also anticipated to include model amendments to help plans implement a student loan payment match. Sponsors should work with their recordkeepers to support implementation of the qualified student loan match and also review services agreements to ensure that sponsor and recordkeeper responsibilities are clearly outlined.