The IRS on Monday issued interim guidance on employer matching contributions made to retirement plans—including 401(k), 403(b), and similar plans—for student loan payments made by their workers.
The guidance in Notice 2024-63 implements Section 110 of the SECURE 2.0 Act of 2022, which allows employees to receive a 401(k) match from their employer, but only if they’re making qualified student loan payments.
A student loan 401(k) match allows companies to pair student loan repayment with contributions to a traditional 401(k) plan. Here’s how it works, according to a U.S. News & World Report article:
“Basically, the SECURE 2.0 allows employers to make matching contributions to a 401(k) or other employer-sponsored retirement plan on behalf of employees who make student loan payments,” says Eliza Arnold, CEO of Arnie, a full-service 401(k) services provider in San Francisco. “Essentially, even if an employee chooses to pay down their student loans instead of contributing to their 401(k), they can still receive the employer match as if they made the contribution to the retirement plan.”
An employee must be making qualified student loan payments due to higher education expenses. The employer must offer a qualifying retirement account and a student loan matching contribution program. Student loan matching contributions can be made to a 401(k), 403(b), SIMPLE IRA or 457(b) plan. The exact 401(k) matching plan structure would be up to the employer’s discretion and the specifics of their 401(k) or retirement plan.
The employee “may choose to match dollar-for-dollar, or perhaps a percentage of the student loan payment,” Arnold says. “There are limits on overall contributions to 401(k) plans each year, both from employees and employer matches, so the combined total contributions would need to stay under that limit.”
The 2022 legislation permits employers with a 401(k) plan, 403(b) plan, governmental 457(b) plan, or SIMPLE IRA plan to provide matching contributions based on student loan payments, rather than based only on elective contributions to retirement plans, in plan years beginning after Dec. 31, 2023.
Using a question-and-answer format that includes several illustrative examples, the interim guidance from the IRS addresses a variety of plan-administration issues, such as:
- General student loan matching contribution eligibility rules (including dollar and timing limitations).
- What is required for an employee certification that student loan matching contribution requirements have been met.
- Reasonable student loan matching contribution procedures that a plan may adopt.
- Special nondiscrimination testing relief for 401(k) plans that include student loan matching contributions.
The interim guidance applies for plan years beginning after Dec. 31, 2024. In the notice, the IRS said it plans to issue proposed regulations providing further guidance on Section 110, but plan sponsors may rely on the notice until the proposed regulations are issued.
Public comments on the interim guidance are welcome; Notice 2024-63 provides information on how to submit comments to the IRS.
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Tags: Benefits, Human Resources, Income Tax, IRS, Payroll, Taxes
