IRS Guidance Addresses Matching Contributions for Student Loan Payments:

Under a SECURE 2.0 Act of 2022 (“SECURE 2.0”) provision that has garnered a lot of attention, matching contributions can be made with respect to a qualified student loan payment (“QSLP”) in a 401(k) plan, 403(b) plan, SIMPLE IRA plan, or governmental 457(b) plan. A QSLP is a payment made by a participant, his or her spouse, or his or her dependent, in repayment of a qualified education loan incurred to pay qualified higher education expenses for such individuals. That term only applies, however, to the extent those payments in the aggregate for the year do not exceed the Internal Revenue Code  (“Code”) section 402(g) limit for the year (or, if lesser, the participant’s compensation), reduced by the participant’s elective deferrals for such year. The participant must certify annually to the employer making the matching contribution that such payments have been made on the loan, and the employer can rely on that certification.

Those SECURE 2.0 provisions are aimed at permitting participants who have significant education loans, and thus who cannot afford to save for their retirement, to receive employer matching contributions without having to make plan contributions. In other words, those SECURE 2.0 provisions treat each QSLP as if it were an elective deferral that was made to a plan, for purposes of calculating matching contributions. Those provisions apply to contributions made for plan years beginning after December 31, 2023.   

On August 19, the IRS published Notice 2024-63 to provide more details about those provisions. Here are the main points of that new guidance:

• For a qualified education loan to be treated as incurred by a participant, he or she must have a legal obligation to make the loan payment. “For example, if an eligible employee is a cosigner on a qualified education loan for the employee’s dependent, both the eligible employee and the dependent may have a legal obligation to make payments under the terms of the loan. However, only the individual who makes payments under the qualified education loan can receive a QSLP match on account of those payments.”
• Plans cannot limit QSLP matches to only certain qualified education loans, such as qualified education loans for an employee’s own education, for a particular degree program (e.g., Bachelor of Arts, Juris Doctor, or Master of Business Administration), or for attendance at a particular school.
• Plans cannot exclude employees from receiving QSLP matches even though those employees are eligible to receive elective deferral matches, and plans cannot exclude employees from receiving elective deferral matches even though those employees are eligible to receive QSLP matches.
• A QSLP match contributed for a plan year cannot be based on a qualified education loan payment that was made during a different plan year.
• To satisfy the certification requirement with respect to a qualified education loan payment, the following items of information must be received by a plan (including a third-party service provider acting for the plan): (1) the loan payment amount; (2) the loan payment date; (3) that the payment was made by the participant; (4) that the loan being repaid is a qualified education loan and was used to pay for qualified higher education expenses of the participant, his or her spouse, or his or her dependent; and (5) that the loan was incurred by the participant.
• Plans can require participants to make a separate certification for each qualified education loan, but plans can permit an annual certification (which applies for all qualified education loan payments intended to qualify as QSLPs for a year).
• Plans can establish a single QSLP match claim deadline for a plan year or multiple deadlines (e.g., quarterly deadlines) for QSLP match claim submissions, provided that each QSLP match claim deadline is “reasonable.” An annual deadline that is three months after the end of a plan year is an example of a reasonable deadline.
• A QSLP match feature can be added as a mid-year change to a safe harbor plan.
• Plans can provide that QSLP matches are contributed at a different frequency than elective deferral matches.

This new guidance applies for plan years beginning after December 31, 2024. For plan years beginning before January 1, 2025, plan sponsors can rely on a good faith, reasonable interpretation of these SECURE 2.0 Act provisions and the guidance in this Notice 2024-63.