Effective January 1, 2024, the Setting Every Community Up for Retirement 2.0 Act (“SECURE 2.0”) allows employers to make matching contributions under defined contribution plans based on employees’ qualified student loan payments.  Although student loan matching contribution programs could provide a significant new benefit for employees with student loan obligations, few employers have amended their plans to implement such programs because further regulatory guidance is needed.

Background

As borrowers in the United States have $1.75 trillion in student loans (both federal and private), the topic of student debt has come under the national microscope in recent years.[1]  In 2023, 28 million people restarted federal student loan payments after a nearly 42-month pandemic-related moratorium.[2]  Although student loan debt is typically associated with younger people, it affects individuals of all ages.  In 2024, about 8.8 million individuals aged 50 and older, including retirees, owe $380 billion in student loans.[3]

Given that student loans impact so many individuals in the workforce, SECURE 2.0’s student loan matching programs are important for employers and employees alike.  For employers, they can be a unique tool for both recruiting and retaining talented employees.  Many student borrowers may delay saving for retirement while they focus on paying down student debt, foregoing free money from employers in the form of a retirement plan matching contribution.  Student loan matching contribution programs allow employees to balance student loan obligations and retirement planning by allowing employees to take advantage of matching contributions to begin saving for retirement while also making payments toward student loans.

Statutory Framework

SECURE 2.0 provides that a defined contribution plan can provide matching contributions based on a participant’s “qualified student loan payments” on a “qualified education loan” incurred by a participant to pay “qualified higher education expenses.”   Student loan payments qualify for matching contributions only (1) to the extent that loan payments do not exceed the annual limit on elective deferrals under Code section 402(g) (reduced by any elective deferrals made under the defined contribution plan) and (2) if the employee certifies annually to the employer that loan payments have been made.  Employers may rely on the employee’s self-certification that the employee has made loan payments.

A plan implementing a student loan matching contribution program must satisfy the following criteria: 

• The plan must provide matching contributions on elective deferrals at the same rate as contributions on qualified student loan payments;
• The plan must provide matching contributions on qualified student loan payments only on behalf of employees otherwise eligible to receive matching contributions on elective deferrals;
• All employees eligible to receive matching contributions on elective deferrals must also be eligible to receive matching contributions on qualified student loan payments; and
• The plan must provide that matching contributions on qualified student loan payments vest in the same manner as matching contributions on elective deferrals.

SECURE 2.0 also addresses some nondiscrimination testing issues related to student loan programs.  Generally, loan payments are not treated as contributions under a plan, except that loan payments can be treated as elective deferrals for purposes of 401(k) safe harbor rules.  For ADP testing under Code section 401(k)(3)(A)(ii), participants receiving matching contributions on loan payments can be tested separately.

Additional Guidance Is Needed

SECURE 2.0 directs the Department of Treasury to issue regulations:

• Permitting a plan to make matching contributions for qualified student loan payments at a different frequency than other matching contributions, provided that the frequency is not less than annually;
• Permitting employers to adopt reasonable procedures for a participant to submit a claim for a qualified student loan payment matching contribution (e.g., a submission deadline), provided that the deadline is not earlier than 3 months after the close of each plan year; and
• Providing a model amendment which can be adopted to implement a compliant student loan matching contribution program.

The anticipated regulations are a good starting point for guidance.  However, there are other significant administrative complexities for implementing a student loan matching contribution program that have not yet been addressed.  Further regulatory guidance regarding the following topics will assist plan sponsors in implementing student loan matching contribution programs:  

• Annual Certification    

• Code section 401(m)(4)(D) provides that a participant must certify annually to the employer that payments have been made on student loans, and Code section 401(m)(13)(c) provides that an employer may rely on the participant’s certification.  What type of information must the participant certify to the employer?  Must the employee register the loan with the employer prior to making payments?  Does the employer have recourse against the employee if false information is certified regarding the loan?

• Payment of loans on behalf of an individual other than the participant

• Code section 401(m)(4)(D) specifies that the loan must be “incurred” by the employee. If the participant guarantees, cosigns, or otherwise has responsibility with respect to a loan for the education of another individual (such as a spouse, child, or dependent), can the participant’s payments toward such obligation qualify for a student loan matching contribution?

• Limitations on Higher Education

• Code section 401(m)(4)(D) provides a complex definition of “eligible educational institution” which refers to other Code provisions and the Higher Education Act of 1965.  Additional guidance would help clarify what types of educational programs qualify.
  • Additionally, can employers craft limitations on the types of educational loans for which they will provide matching contributions?  For example, can employers limit their student loan matching contributions to loans for education at 4-year universities only, excluding community colleges or technical schools?  Can employers limit matching contributions to loans for education in certain fields related to the employer’s line of business?

• Nondiscrimination Testing

• Code section 401(m)(13)(B)(iv) specifies that the participants receiving a match related to loan payments can be tested separately for purposes of ADP testing.  However, how must employers correct nondiscrimination testing issues related to matching contributions made on behalf of qualified student loan payments, such as excess deferrals for highly compensated employees?

• Forfeitures

• Can employers use forfeitures to offset the cost of matching contributions made on behalf of qualified student loan payments?

Conclusion

Student loan matching contribution programs offer employers with defined contribution plans a new tool to attract and retain talented employees.  These programs will assist employees, particularly younger people, in saving for retirement while also satisfying loan obligations.  Guidance from the IRS, the timing of which is unclear, will assist plan sponsors in implementing student loan matching contribution programs to further the goals of both employers and employees.  Practitioners do expect regulatory authorities to provide guidance, but the timing for such guidance is unclear.

---

[1] “2024 Student Loan Debt Statistics: Average Student Loan Debt,” Forbes.com (https://www.forbes.com/advisor/student-loans/average-student-loan-debt-statistics/).

[2] “A First Look at Student Loan Repayment After the Payment Pause,” U.S. Department of Education, Homeroom Blog (https://blog.ed.gov/2023/12/a-first-look-at-student-loan-repayment-after-the-payment-pause/).

[3] “2024 Student Loan Debt Statistics: Average Student Loan Debt,” Forbes.com (https://www.forbes.com/advisor/student-loans/average-student-loan-debt-statistics/).