IRS Issues FAQs on Student Loan Repayment Matching in Retirement Plans

The Secure 2.0 Act permits employers to match student loan repayments through retirement plan contributions.

The Internal Revenue Service has published question-and-answer style guidance on Section 110 of the Setting Every Community Up for Retirement Enhancement 2.0 Act, which permits employers to match their workers’ student loan repayments in the form of retirement plan contributions.

Under the landmark retirement reform legislation, known as the Secure 2.0 Act, employers were granted the option of treating employees’ qualified student loan payments as elective deferrals for purposes of an employer’s matching contribution program — even if the employee does not directly contribute to the retirement plan.

However, not all payments are eligible, so it’s important for employers to understand the details of what constitutes a qualified student loan payment. The new guidance is meant to help employers with such determinations, along with answering other common administrative questions raised by retirement plan sponsors.

Among the clarifications in the new guidance is the confirmation that, for a qualified education loan to be treated as incurred by an employee, the employee who makes a payment on the qualified education loan must have a legal obligation to make the payment under the terms of the loan.

The guidance also reiterates the basic definition of a qualified student loan payment, or QSLP, emphasizing that such a payment must meet the following criteria:

Borrowers and Co-signers vs. Guarantors

In general, the IRS clarifies, a co-signer has a legal obligation to make payments under the terms of a loan, but, unless the primary borrower defaults, a guarantor does not have a legal obligation to make payments.

Therefore, if an eligible employee is a co-signer on a qualified education loan for the employee’s dependent, both the eligible employee and the dependent may have a legal obligation to make payments.

However, only the individual who actually makes payments can receive a qualified student loan payment match.

Eligible Retirement Plan Types

The guidance confirms that a QSLP match feature may be added to a section 401(k) plan, a section 403(b) plan, a SIMPLE IRA plan under section 408(p), or a governmental section 457(b) plan.

In general, the notice describes the QSLP match rules by referring to statutory language applicable to plans other than SIMPLE IRAs. For QSLP match rules specific to SIMPLE IRA plans, the notice sets out another, albeit similar, set of requirements.

Qualified Repayment Certification

As the guidance clarifies, a plan may require a separate certification for each qualified education loan payment intended to qualify as a QSLP or permit an annual certification that applies for all qualified education loan payments intended to qualify as QSLPs for a year.

For proper certification, the following items of information must be received by a plan or a third-party service provider acting on behalf of the plan:

Other Clarifications and Considerations

The guidance stipulates that a plan with a QSLP match feature may not include provisions that exclude employees from receiving QSLP matches even though those employees are eligible to receive normal elective deferral matches.

Likewise, a plan with a QSLP match feature cannot include provisions that exclude employees from receiving elective deferral matches even though those employees are eligible to receive QSLP matches.

This is because all employees eligible to receive elective deferral matches under a plan with a QSLP match feature must be eligible to receive QSLP matches. Also, a plan with a QSLP match feature must provide QSLP matches only on behalf of employees eligible to receive elective deferral matches.

In general, this requirement of uniform treatment for elective deferral matches and QSLP matches applies to all employees covered by a plan, so that employees may not be excluded from QSLP matches on an individual employer, business unit, division, location or other similar basis.

However, for purposes of determining what constitutes a plan under section 401(m)(13)(A), the disaggregation rules apply, including with respect to collectively bargained employees. Thus, a plan may include a QSLP match feature that applies only to non-collectively bargained employees without violating the code.

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