IRS offers clarity around 401(k) matches to student loan payments

A new technical note from the IRS has made it easier for employers to reward student-debt saddled workers for chipping away at those loans.

On Monday, the IRS shared interim guidance that implements section 110 of the SECURE 2.0 Act of 2022 and provides clarity for employers implementing this new benefit.

The new guidance applies for plan years beginning after December 31, 2024, the tax agency said, giving employers with 401(k), 403(b), governmental 457(b), or SIMPLE IRA plans some answers on how to match employee student loan payments similar to how they would for traditional retirement contributions.

In separate moves early this year, Betterment and Fidelity revealed offerings through which employers could automatically match workers’ student loan payments with contributions to their 401(k) accounts.

The IRS's guidance outlines rules regarding eligibility, employee certification requirements, and options for nondiscrimination testing relief for 401(k) plans that include these student loan matching contributions.

One key aspect of the guidance is its flexibility in addressing administrative challenges faced by plan sponsors, specifically in determining whether an employee actually made qualified student loan payment.

In a post following the IRS’ new technical guidance, the National Association of Plan Advisors highlighted that employers can now choose from several methods for verifying QSLPs, which involve different levels of active and passive certification by the employee.

“By and large, the biggest thing is that the guidance provides for flexibility in designing the plan in a way that is administrable,” Kelsey Mayo, director of regulatory affairs at the American Retirement Association, told NAPA. “It paves the way to make the student loan match an integrated part of the plan rather than an overly-administrative burden.”

The IRS plans to issue proposed regulations in the future but confirmed that plan sponsors can rely on the current notice in the meantime.

In a statement, Andy Banducci, senior vice president for retirement and compensation policy at the ERISA Industry Committee, praised the interim guidance.

“ERIC’s member companies are committed to the financial wellbeing of their employees, including those with outstanding student loans,” Banducci said. “We applaud the IRS for issuing interim guidance implementing this change.”