IRS Issues Guidance On Employer Matching Of Student Loan Payments

After initially offering limited guidance on the revised contribution plan, on Aug. 19, the IRS released more robust guidance, defining what constitutes a qualified student loan payment, who qualifies for regular employer-sponsored matches, and sets the minimum number of contributions at one per fiscal year.

In December 2023, the Secure 2.0 Act was passed, and a number of provisions in the act were set to go into effect in 2024; among them was the ability of employers to match student loan payments similar to 401(K)’s. According to Business Insider, the program allows student loan payments to be treated as qualifying contributions toward 401(K) plans, 403(b) plans, or other retirement savings plans. It uses the same calculation as contributions pulled directly from an employee’s paycheck.

According to the IRS, “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. In general, a cosigner has a legal obligation to make payments under the terms of a loan, but unless the primary borrower defaults under a loan, a guarantor does not have a legal obligation to make payments under the loan. For example, if an eligible employee is a cosigner 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 under the terms of the loan. However, only the individual who makes payments under the qualified education loan can receive a QSLP match on account of those payments.”

According to Teresa Greenip, a CFP and senior wealth manager at Aspirant, “Student loan debt can be a significant drain on household income, shifting resources away from basic necessities, retirement savings, and other goals such as purchasing a home,” Greenip told Business Insider. “Eliminating student loan debt can benefit the economy by shifting household resources from debt repayment to investment and spending, as well as increased personal productivity.”

Greenip continued, “Employee deferrals to retirement plans are administered by employers themselves, so it’s relatively easy to track contributions. Since employers do not track student loan repayments, this adds a layer of complexity and administrative support that will be needed to offer the benefit.”

Andy Banducci, the senior vice president for Retirement and Compensation Policy at the ERISA Industry Committee (ERIC), a national advocacy organization representing large employers that provide health, retirement, paid leave, and other benefits to their employees. According to Banducci, ERIC lobbied Congress for a tax law change and issued the following statement to Forbes: “ERIC’s member companies are committed to the financial wellbeing of their employees, including those with outstanding student loans. That is why we lobbied Congress to enact a tax law change allowing employers to make retirement plan matching contributions on account of workers’ qualified student loan payments. We applaud the IRS for issuing interim guidance implementing this change and look forward to providing technical comments to the IRS in the coming weeks.”