3713.10 / What should small business clients know about the SECURE Act 2.0 student loan match option?

Because student loans may prevent employees from contributing to employer-sponsored retirement plans, employees with student loans become less likely to receive the benefit of employer matching contributions. Beginning in 2024, employers have the option of treating employees’ qualified student loan payments as elective deferrals for purposes of an employer’s matching contribution program under the SECURE Act 2.0.

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Planning Point: Not all payments are eligible—so it’s important for employers to understand the details of what constitutes a qualified student loan payment.

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Typically, employers make matching contributions to employer-sponsored retirement plans based on the participant’s elective deferrals to the plan. For example, an employer may offer a 50 percent matching contribution up to 5 percent of the employee’s salary. So, for every dollar the employee contributes, the employer contributes an additional 50 cents—up to the compensation limit.

Historically, employees have only received this benefit if they have the funds to contribute to the account.

Beginning in 2024 and beyond, employers will also be entitled to make matching contributions to an employer-sponsored retirement plan based on an employee’s qualified student loan payments—even if the employee does not directly contribute to the retirement plan.

Student loan repayments are only treated as contributions to the plan for purposes of qualification testing. Further, employers are permitted to either include these matching contributions with their general non-discrimination testing or test participants who receive these loan-based matching contributions as a separate group.

The provision applies to any type of employer-sponsored deferral-based retirement plan, including 401(k)s, 403(b)s, SIMPLE IRAs and governmental 457(b) plans. Under the new law, the employer must treat the qualified student loan payment match in the same manner as the employer’s deferral-based matching contribution.

Only payments that are classified as qualified student loan payments can be considered in the employer’s matching program. A qualified student loan payment is one that is made on a loan taken for the sole purpose of paying qualified education expenses for the individual, a spouse or someone who was the individual’s dependent at the time the debt was incurred. The loan must be for education provided during an academic period for an eligible student and the expense must be paid or incurred within a reasonable period of time before or after the debt was incurred.

Qualified education expenses include tuition, fees, books, and other similar required expenses incurred by an eligible student. An eligible student is someone who is enrolled at least half-time (with at least six credit hours) in some type of program of study that is designed to lead to a degree, certificate or other type of recognized education credential at an eligible education institution.

Expenses incurred for games, sports, hobbies, or non-credit activities do not qualify.

The law does not specify whether the student must have graduated from or completed the program in order for the related student loan debt to qualify. Because the student loan matching program is entirely optional, it seems possible that the employer may be entitled to decide whether graduation is a requirement for receiving the benefit.