The IRS has provided long-awaited guidance for 401(k) and 403(b) plans on how to treat workers’ student loan payments like retirement plan deferrals when employers choose to offer matching contributions.
The agency’s new interim guidelines (2024-63) released on Monday instruct plans on how and when to offer matching funds for participants repaying student loan debt, aligning with a provision of the SECURE 2.0 Act.
The sweeping two-year-old retirement law sought to let employers choose to count student loan repayments as part of a worker’s retirement deferrals for the purposes of calculating matching contributions. The provisions were designed to help workers build nest eggs while still paying off their loans, especially younger workers more likely to carry student debt.
Workers demanded more direct help with student debt from employers as the federal government wound down its pandemic-related loan forbearance in 2023. Only about 9% of employers offer direct repayment assistance, according to a 2024 Society for Human Resource Management survey.
The IRS guidance confirmed employer contributions to loan repayments must be made at the same rate and under the same vesting schedule as the plan’s regular match.
Betterment LLC launched the nation’s first commercial product tying student loan repayments to employer retirement plan matches, three weeks after the provision of SECURE 2.0 took effect in January, relying on the law’s text to guide its effort. Fidelity Investments and SoFi Technologies Inc. have also marketed their own recordkeeper services to employers to facilitate matching for student loan payments.
Ever since SECURE 2.0 first created the student loan matching program, plan sponsors have raised questions about their fiduciary duty to determine whether loan repayments have actually been made, and about how loan-based matches would measure against other workers’ account balances when calculating what proportion of their income employees defer.
The guidance describes eligibility rules including dollar amount and timing limitations, as well as what is required for an employee to certify that their student loan matching contribution requirements have been met.
Employees making qualified education loan payments must also certify annually to their employer that the payment has been made on the loan, according to the guidance. Placing the onus on employees to self-certify that they are making the payments addresses the question employers had about their fiduciary duties in that area.
Plans that offer student loan matching contributions are also entitled to special relief from certain nondiscrimination testing requirements, the IRS said.
Nondiscrimination standards require that the actual deferral percentage of the plan’s highly compensated employees doesn’t greatly exceed that of employees who are compensated less in a given plan year. A plan that has a match for student loan repayments may apply a single test for all employees, or separate tests that the guidance outlines for employees who receive the match and those who do not.
Monday’s notice applies for plan years beginning after Dec. 31, 2024, and the IRS plans to issue proposed regulations to provide further guidance on the matter, the agency said in a statement.
