IRS Issues Guidance on a New Plan Design Feature: 

On August 23, the IRS published Private Letter Ruling 202434006 (the “PLR”). The applicant proposed to amend its 401(k) plan (the “401(k) Plan”), retiree health reimbursement arrangement (the “Retiree HRA”), educational assistance program (the “EAP”), and its Health Savings Accounts (“HSAs”) program. More specifically, the applicant proposed to amend those programs to allow eligible employees to make an annual, irrevocable election during open enrollment. Under the election, special employer contributions will be allocated among those programs. Also, if an eligible employee does not make such an election, his or her employer contribution will be allocated to the 401(k) Plan and will vest immediately. Employees will not be allowed to receive the employer contribution in cash or in the form of any other taxable benefit.

The applicant also proposed to amend its EAP to provide student loan payments if an employee elects to allocate the employer contribution to the EAP. In this regard, the amendment would allow for student loan payments (generally through December 31, 2025) from the EAP, and the EAP would make the student loan payments directly to the respective lenders. The applicant also noted that its proposal will only reduce discretionary contributions to the 401(k) Plan (because a portion of those contributions will be used as the proposal’s employer contributions). No changes will be made to the 401(k) Plan’s safe harbor contribution formula.

The IRS approved the applicant’s PLR request, subject to employees’ allocations of employer contributions to the 401(k) Plan, Retiree HRA, EAP, and/or HSA not exceeding the applicable contribution limits to those arrangements.

Of course, the IRS notes that this PLR “is directed only to the party requesting it” and it “may not be used or cited as precedent.” Some prior PLRs, however, have led to the codification of generally-applicable law that reflects such PLRs. It will be interesting to see if that occurs with respect to this PLR.