SECURE Act 2.0 Allows for Retirement Matching for Student Loan Payments

by Prof. Robert Bloink and Prof. William H. Byrnes

The SECURE Act 2.0 created a powerful new employment benefit that allows employers to make matching contributions to employee retirement accounts based on the employee’s student loan payments, rather than retirement contributions. However, the employer match is only permitted when the employee makes “qualified” student loan payments, or QSLPs. The SECURE Act 2.0 offered only minimal guidance on the new QSLP match option, leaving employers uncertain about whether to offer the benefit in the first place. The IRS has now provided important interim guidance on QSLPs via Notice 2024-63, answering many important questions to give employers a more concrete foundation for their obligations when offering a QSLP match.

Notice 2024-63 QSLP Guidance

By way of background, QSLPs must be related to qualified higher education expenses (1) incurred for the employee, the employee's spouse or dependents, (2) paid or incurred within a reasonable period of time before or after the indebtedness is incurred, and (3) attributable to education furnished during a period during which the recipient was an eligible student.

In Notice 2024-63, the IRS clarified that the employee must have a legal obligation to repay the loan, meaning that it must be either their loan or a loan they co-signed. Absent the employee's legal obligation to repay, there is no QSLP. If the employee did co-sign the loan, they must actually be making the payments for those payments to qualify as QSLPs. When a dependent is making the payments, they are not QSLPs.

The maximum amount that can be treated as a QSLP for the year is the annual 401(k) (or 403(b)) contribution limit for the year (or, if less, the employee’s compensation for the year), reduced by the employee’s elective deferrals for the year.

All employees who are eligible to receive the employer’s traditional elective deferral match must be eligible for matching contributions based on QSLPs (and vice versa). The employer similarly cannot restrict the match to a certain group of employees (an exception exists for collectively bargained employees), a certain type of loan or a certain type of educational institution or degree type.

The employer can require that the employee be employed at the last day of the year to receive the match, but only if the employee has a similar requirement for traditional matching contributions. The employer is entitled to make QSLP matches at a different frequency from elective deferral-based matching contributions.

The employer can establish one single QSLP match claiming deadline for the year, or can elect to establish multiple deadlines, so long as those deadlines are “reasonable”. As an example, the IRS stated that an annual deadline that is three months from the end of the plan year would be reasonable, but earlier deadlines could also be found reasonable. Similarly, the employer’s administrative procedures related to the QSLP match must be reasonable, considering the facts and circumstances—including whether the QSLP match is effectively available to all eligible employees.

Loan repayments made in prior plan years cannot be the basis for QSLP matches in the current plan year.

With respect to nondiscrimination testing, the employer can elect to apply ADP testing to all employees as a single group or by applying the ADP test separately to (1) employees who receive only traditional matching contributions and (2) employees who receive QSLP matches.

The guidance provided in Notice 2024-63 is effective for plan years beginning after December 31, 2024. For earlier plan years, employers can rely on a reasonable, good faith interpretation of the SECURE Act 2.0 provisions.

Employee Certification Rules

Employers must require that employees pro-vide specific certification with respect to their QSLPs. The employer can require a separate certification for each qualified education loan payment intended to qualify as a QSLP or permit annual certification that applies to all payments intended to qualify.

Certification must include the following information: (1) the amount of the loan payment; (2) the date of the loan payment; (3) that the payment was made by the employee; (4) that the loan being repaid is a qualified education loan and was used to pay for qualified higher education expenses of the employee, the employee’s spouse, or the employee’s dependent; and (5) that the loan was incurred by the employee.  The employer can require affirmative certification of each element by the employee. The employer can also independently verify the first three elements.

Surprisingly, if the employee’s certification turns out to be incorrect, the employer is not required to correct the match based on that certification. However, the employer may correct the match based on incorrect certification, provided that all QSLP matches made under similar circumstances are also corrected.

Conclusion

Future guidance on QSLPs, including formal regulations, is expected. The IRS and Treasury Department have requested comments on the interim guidance, meaning that employers who are interested in the QSLP match option should pay close attention going forward.

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