There’s a brand new benefit employers may establish beginning in plan years during 2024. Under the Setting Every Community Up for Retirement Enhancement (SECURE) 2.0 Act, employers have the option of making matching employer contributions to certain types of employer-sponsored retirement plans based on employee’s student loan repayments. This includes 457(b) and 403(b) plans. Under this new benefit, as employees pay down their student loans, their employer will provide matching contributions to their retirement plan even if the employee is not making their own retirement contributions.
The underlying purpose of these new student loan matching programs is to help employees who have student loan debt and who may not have the financial means to contribute to their retirement plan when they have to prioritize paying down student loans. Before SECURE 2.0 was passed, employers started to ask the Internal Revenue Service whether they could make employer matching contributions to retirement plans for employees who are paying down their student loans as a recruitment and retention tool. SECURE 2.0 now establishes this new benefit.
The key requirements for the new student loan matching programs are:
- Employer matching contributions must be based on qualified student loan payments (QSLP), which are payments on a qualified higher education loan that was incurred to pay for qualified higher education expenses at an eligible education institution.
- A QSLP includes a loan to pay higher education expenses of the employee, the employee’s spouse, or the employee’s dependent.
- The employee must provide certification of their student loan payments at least annually. An employer can rely on an employee’s certification.
- Even if the employer typically makes matching contributions on an employee’s elective deferrals to a 457(b) or 403(b) plan throughout the year, matching contributions based on a student loan matching program are only required to be made once a year.
- An employer can only make matching contributions for student loans on behalf of employees who are or would be eligible to receive matching contributions on elective deferrals.
- The matching contributions must be made at the same rate as matching contributions on the employee’s own contributions. The matching contributions must also vest in the same way as the employee’s elective deferral contributions.
- Matching contributions are limited to the amount of an employee’s student loan payments.
- Student loan matching contributions to a 457(b) plan are also limited to the amount of the 457 plan deferral limit ($23,000 for 2024) or the employee’s compensation if less, minus any plan contributions made by the employee for the year.
If your agency is interested in learning more about this new benefit, please reach out to us.
