The IRS recently issued interim guidance for employers offering 401(k) and similar retirement plans who wish to provide matching contributions based on employees’ student loan payments. This new provision, part of the SECURE 2.0 Act of 2022, allows employers to match student loan payments with retirement contributions starting from plan years beginning after December 31, 2023.
The guidance, detailed in IRS Notice 2024-63, explains that employers can now provide matching contributions not just on traditional retirement plan contributions but also on qualifying student loan payments. This is a significant shift, acknowledging that many employees are focusing on repaying student loans rather than contributing to retirement plans. By allowing matching contributions on student loan repayments, the new rule aims to help employees build their retirement savings even as they manage educational debt.
Key Points of the Guidance:
- Eligibility and Timing: The guidance outlines specific rules around which student loan payments qualify for matching contributions. These include dollar limits and timing restrictions, ensuring that contributions are aligned with the plan’s overall objectives.
- Employee Certification: Employees must certify that they have made eligible student loan payments to receive the corresponding matching contributions. This ensures that the benefits are applied accurately and fairly.
- Plan Procedures: The guidance provides flexibility in how plans can implement these matching contributions, allowing sponsors to adopt reasonable procedures that fit within their plan’s framework.
- Nondiscrimination Testing Relief: To facilitate the inclusion of student loan matching contributions, the guidance also provides special nondiscrimination testing relief for 401(k) plans. This ensures that offering these new benefits doesn’t inadvertently cause compliance issues.
What This Means for Employers:
This new guidance presents a valuable opportunity for employers to enhance their benefits offerings, particularly for younger employees burdened by student debt. By offering matching contributions on student loan payments, businesses can help their employees build retirement savings while they pay down their loans.
Next Steps:
Employers should review the IRS Notice 2024-63 carefully and consider updating their retirement plan offerings to include this new option. If you want to take advantage of these new rules, start preparing now to integrate this option into your benefits package. Contact us if you would like help setting up your plan to ensure it is compliant and optimized for both the business and its employees.