Participants in eligible employer retirement plans, such as 401(k) plans, can choose to make salary-reduction contributions to their accounts. These salary deferrals, as the IRS calls them, reduce the employee's taxable salary. To sweeten the deal, employers may offer matching contributions to the accounts of participating employees.
Here are the details about a new matching option for employees who make student loan payments. The favorable change went into effect for plan years beginning in 2024.
For 2024, the maximum salary reduction contribution is generally $23,000. However, the maximum contribution is $30,500 if you're 50 or older and the company plan allows you to make extra catch-up contributions of up to $7,500.
Employers can choose to make matching contributions to employees' accounts. Matching contributions are equal to a percentage of the employee's salary-reduction contribution. For example, your employer might match 50% of your salary-reduction contribution up to a maximum of 6% of your salary.
Under a provision of SECURE 2.0, employers can make matching plan contributions to cover the qualified student loan payments (QSLPs) made by plan participants during the year. Employees participating in the following plans may be eligible:
Note that special rules apply to SIMPLE-IRA plans.
In effect, this provision allows employers to make matching contributions to accounts of employees who aren't actually contributing to their accounts but who are making student loan payments. Employers can rely on employees to self-certify the amount of their QSLPs each year.
Here's an example: Let's suppose Jolene's company matches $1 for every $2 that an employee contributes to the 401(k) plan, up to a maximum match of 6% of salary. In 2024, Jolene's salary is $60,000, and she makes a $6,000 salary-reduction contribution. Based on the company's matching policy, the company contribution is $3,000 (50% of her salary-reduction contribution).
Under the SECURE 2.0 provision, Jolene's employer could make the $3,000 matching contribution to her 401(k) account if she makes $6,000 in QSLPs in 2024. Jolene wouldn't be required to contribute to her retirement account to qualify for matching contributions — the QSLPs would count instead.
The IRS recently released Notice 2024-63, which provides question-and-answer guidance on how employers can make matching contributions to the accounts of employees who make QSLPs. The new guidance applies to plan years beginning in 2025 and beyond.
For plan years beginning in 2024, employers can rely on a good faith reasonable interpretation of the SECURE 2.0 provision that covers QSLP matches. The guidance in Notice 2024-63 counts as a good faith reasonable interpretation. It provides answers to the following key questions:
What is a QSLP? A QSLP is a payment made during a plan year, to repay a qualified education loan for the qualified higher education expenses of the employee, the employee's spouse or dependent.
The employee must have a legal obligation to make the payment under the loan terms. Generally, a cosigner has a legal obligation to make payments under the terms of a loan. But, unless the primary borrower defaults, a guarantor has no legal obligation to make payments under the loan.
Can a plan limit QSLP matches to only certain qualified education loans? The answer is no. Employers may wish to restrict QSLP matching contributions to loans for the employee's own education, a particular degree program or certain schools. However, such limitations aren't permitted under the guidance. If the employer has a QSLP matching program and an eligible employee has made QSLPs, as defined earlier, the employee must be eligible to receive matching contributions for the QSLPs.
Can a plan with a QSLP matching feature exclude certain employees? The guidance clarifies that exclusions for certain employees are prohibited. All employees eligible for salary-reduction matches under a plan that also includes a QSLP matching feature must be eligible to receive QSLP matching contributions.
Can a matching contribution for a plan year be based on a QSLP made during a different plan year? Only an employee's QSLPs that were made during the plan year are eligible to be counted for purposes of the QSLP match for that plan year.
How do employers verify that an employee's education loan payments meet the QSLP requirements? An employee must certify that his or her education loan payments satisfy the QSLP requirements. A plan can require a separate certification for each student loan payment that's intended to qualify as a QSLP. Alternatively, it can permit an annual certification that applies for all student loan payments that are intended to qualify as QSLPs for that year.
What information must plans collect to satisfy the QSLP certification requirement? For each plan year that matching contributions are made, the plan must receive the following information from the employee's lender to satisfy the certification requirement:
Under the so-called passive certification procedure, the employee must provide the plan with written confirmation that:
The employee isn't required to provide this written confirmation each year, just in the first plan year that QSLP matching contributions are made.
The guidance also requires plans to confirm that the employee made the education loan payment. However, the employer can assume this requirement has been satisfied unless the employer has actual knowledge to the contrary.
Can a plan contribute QSLP matches at a different frequency than salary-reduction matches? This is permitted if QSLP matches are contributed at least once annually. For example, a 401(k) plan with a QSLP matching feature can allow QSLP matching contributions to be made annually. Salary-reduction matching contributions, however, can be made on a biweekly payroll basis.
Given skyrocketing college costs, any employer-sponsored program that helps pay off student loan debt will likely be popular. Students and parents borrowed an estimated $98.2 billion in the 2022–2023 academic year, and total student loan debt reached $1.74 trillion in the second quarter of 2024, according to Lending Tree.
Many employers already provide matching contributions to the retirement accounts of employees who make salary-reduction contributions. Adding a QSLP matching feature to your company's retirement plan can help you attract and retain skilled workers. For more information about QSLP matching contributions, contact your tax advisor.
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