Student Loan Payments as Elective Deferrals for Matching Contributions in 401(K) Plans
SECURE 2.0 Act Sec 110 is intended to assist employees who may not be able to save for retirement because they are overwhelmed with student debt, and thus are missing out on available matching contributions from their employers for retirement plans.
Section 110 allows such employees to receive those matching contributions by reason of repaying their student loans by permitting an employer to make matching contributions under a 401(k) plan, 403(b) plan, SIMPLE IRA or 457(b) government plan with respect to “qualified student loan payments (QSLPs).”
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QSLPs are payments made by an employee during a plan year to repay qualified education loans used for the higher education expenses of the employee, their spouse, or their dependent. The total amount taken into account for an employee's matching contribution, including both loan repayments and elective deferrals, may not exceed the lesser of:
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The annual deferral limit in effect for the year (e.g., $23,000 for 2024) or
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The employee's compensation. For a qualified education loan to be recognized as being incurred by an employee, the employee must be under a legal obligation to make the payment (e.g., a loan cosigner).
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Certification
For purposes of the nondiscrimination test applicable to elective contributions, Section 110 permits a plan to test separately the employees who receive matching contributions based on QSLPs. Plans may not limit QSLP matches to specific qualified education loans.
Employer may rely upon the employee certification of student loan payment. Plans may require a separate certification for each payment or allow for an annual certification covering all QSLPs made in that year. The certification (Notice 2024-63) must specify:
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The payment amount;
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The payment date;
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That the employee made the payment;
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That the loan is for qualified education expenses; and.
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That the employee incurred the loan.
Effective Date: Applies to contributions made for plan years beginning after December 31, 2023