SECURE 2.0 Act: Matching Retirement Plan Contributions to Student Loan Payments
Published on by Jessica Doremus in Benefit Plan Audits
The IRS has provided guidance to employers that provide matching retirement plan contributions based on student loan payments – a provision of the SECURE 2.0 Act of 2022.
Notice 2024-63 implements Section 110 of the SECURE 2.0 Act of 2022; this section allows employers with a 401(k) plan, 403(b) plan, SIMPLE IRA plan, or 457(b) plan to make matching contributions based on employees’ qualified student loan payments. For plan years beginning after December 31, 2023, employers with these types of plans can provide matching contributions based on employees’ qualified student loan payments rather than matching contributions based only on the employee’s elective contributions to retirement plans.
Not required, but an appealing benefit
This is not a required feature, however, plan administrators may want to consider providing this benefit to employees, and a plan amendment may be necessary. This match feature can be added as a mid-year change to a safe harbor plan.
What student loans qualify
The Internal Revenue Code defines a qualified education loan as “any indebtedness incurred by a taxpayer solely to pay qualified higher education expenses, subject to the conditions of section 221(d)(1)(A)-(C), which provide that the qualified high education expenses must be (1) incurred on behalf of the taxpayer, taxpayer’s spouse, or any dependent of the taxpayer as of the time the indebtedness was incurred, (2) paid or incurred within a reasonable period of time before or after the indebtedness is incurred, and (3) attributable to education furnished during a period during which the recipient was an eligible student.”
Annual certification required
In addition to the qualified student loan repayments meeting the requirements listed above, the employee making these payments must certify annually to the employer that payment has been made on the loan. The employee must provide the following items to the plan and third-party service provider acting on behalf of the plan to certify it is a valid qualified student loan:
- The amount of the loan payment
- The date of the loan payment
- That the payment was made by the employee
- That the loan being repaid is a qualified education loan and was used to pay for qualified higher education expenses of the employee, their spouse, or dependent and
- That the loan was incurred by the employee
Items 1, 2, and 3 above can be satisfied through independent verification by the employer or through passive certification of the employee. Items 4 and 5 can be certified only through affirmative certification by the employee. One method of satisfying the affirmative certification is through loan registration where an employee provides information to the plan regarding items 4 and 5 before the first loan payment is made.
The plan must vest these matching contributions related to the qualified student loan repayments in the same manner as elective deferral matches.
The amount of an employee’s aggregate qualified education loan payments for a year that can be included for the matching contribution cannot exceed an amount equal to the limitation applicable under section 402(g) for the year reduced by the employee’s elective deferrals for the year.
ADP testing options
If you choose to put these benefits into your plan, there are new options for the ADP tests that are performed for the plan. The plan can either perform one ADP test for all employees or the test can be separated out between elective deferrals of employees who receive the qualified student loan repayment match and elective deferrals of employees who did not receive this match.
Additional resources
Click here to read Notice 2024-63.
You may also be interested in our employee benefit plan audit video series, available on-demand, or the most recent 401(k) plan management survey. We also offer a series of compensation and benefits studies – useful tools for benchmarking your organization against others in our region.
If you have questions or need assistance interpreting The Secure 2.0 Act, Barnes Dennig can help. For additional information, contact us. As always, we’re here to help.