January 23, 2023
SECURE Act 2.0 – The Student Loan Match
Take-Away: The SECURE Act 2.0 permits employers, particularly those employers who hire college graduates, to match student loan repayments made by plan participants, thus making the employer’s qualified plan more attractive and beneficial to its employees.
Background: Section 110 of the SECURE Act 2.0 authorizes an optional provision that may be popular with some employers, in that it provides for the ability of the employer, i.e. the qualified plan sponsor, to make matching contributions based on the repayment of student loans by plan participants. Some employers life professional firms that hire a large number of college graduates will likely adopt this provision. In contrast, plan sponsors that primarily employ ‘blue collar’ employees may not see the need to add this provision to their qualified plan due, in part, to the increase in administrative complexity it creates.
Qualified Student Loan Payment: This is broadly defined in the Act as ”any indebtedness incurred by the employee solely to pay qualified higher education expenses of the employee.”
Summary of Provision: Some of the key aspects of this matching contribution opportunity follow:
Effective Date: This provision, if added to a qualified plan, is effective for plan years after December 31, 2023. Since most qualified plans are operated on a calendar year basis, this provision will thus become effective for a plan starting in 2024.
Optional: As noted it is optional whether the employer-sponsor will amend its qualified plan to provide matching contributions based on the repayment of student loans. The IRS is authorized to issue model plan amendments for the plan sponsor’s qualified student loan repayment matching contributions.
Deferral Based Plans: If added to a plan, this provision applies to deferral-based qualified plans such as 401(k), 403(b), SIMPLE IRAs and 457(b) governmental plans.
Treated Like All Other Matching Deferrals: If added to a plan, the plan must treat the qualified student loan repayment matching contribution the same as all other matching contributions of a plan participant’s income deferrals.
Certification: The plan sponsor can rely upon the employee-participant’s certification of his/her loan repayments.
Testing: A qualified plan may, at its option, ‘test’ the matching contributions as a part of its general discrimination testing requirements, or as a separate group that consists solely of those plan participants who receive matching contributions as a result of their repayments on their qualified student loans.
Not Treated as Contribution: Other than for qualification testing, the participant’s student loan repayments are not treated as contributions to the qualified plan.
Frequency of Matching Contributions: The IRS is charged with publishing Regulations that permit the qualified student loan repayment to be made less frequently than regular matching contributions, but not less frequently than annually. It is expected that the Regulations will permit qualified matching contributions to be made once a year for administrative convenience.
Conclusion: As noted earlier, not all qualified plan sponsors will be interested in adding this provision to their qualified plan. Initial interest will be for those plan sponsors who hire enough college graduates to make the effort, and additional administration, worthwhile.