On August 19, 2024, the IRS released interim guidance regarding employer matching contributions for employees’ qualified student loan payments (QSLPs) under Section 110 of the SECURE 2.0 Act. The guidance, issued in a Q&A format in Notice 2024-63, covers several key topics to assist employers, including the types of eligible retirement plans that can feature a QSLP match, the definition of QSLPs, certification requirements for QSLPs, reasonable procedures for implementing QSLP matches, and the frequency of employer QSLP matches. Although Section 110 applies to contributions for plan years beginning after December 31, 2023, many employers were waiting for further IRS guidance before considering this optional feature for their workforces.
For employees, this feature offers the dual benefit of saving for retirement while focusing on student loan repayment. For employers, offering QSLP matching can be a powerful tool for attracting and retaining younger talent. However, employers should be aware of the additional costs and responsibilities associated with implementing this feature, including plan amendments, administrative and operational costs for tracking QSLPs, recordkeeping, employee communication and engagement, and potentially higher overall contribution expenses due to increased employee participation.
Key Takeaways for Employers:
- Optional Feature: Employer matching contributions for QSLPs are not mandatory. However, employers who choose to implement this provision must make it available to all employees eligible for matching contributions based on elective deferrals. Employers cannot limit QSLP matches to specific types of student loans, educational institutions, or degrees.
- Eligible Plans: Retirement plans that can feature QSLP matching include 401(k) plans, 403(b) plans, SIMPLE IRAs under Section 408(p), and governmental 457(b) plans.
- Plan Amendments: Employers are required to amend their retirement plans to incorporate the QSLP matching arrangement.
- Employee Certification: Employees must certify that their student loan payments qualify as QSLPs. A QSLP is defined as “a payment made by an employee in repayment of a qualified education loan (as defined in Section 221(d)(1)) incurred by the employee to pay qualified higher education expenses, subject to the Section 401(m)(4)(D)(i) amount limitation and the Section 401(m)(4)(D)(ii) certification requirement.”
- Certification Process: Plans may require a separate certification for each QSLP or permit an annual certification applicable to all QSLPs for a year. The required certification must include:
- The amount of the loan payment;
- The date of the payment;
- Confirmation that the payment was made by the employee;
- Confirmation that the loan being repaid is a qualified education loan used for qualified higher education expenses for the employee, the employee’s spouse, or the employee’s dependent; and
- Confirmation that the loan was incurred by the employee.
- Reliance on Certification: Plans may rely on an employee’s annual certification without requiring supporting verification. However, plans may require verification that the student loan payment satisfies the QSLP requirements, provided the verification is conducted according to established reasonable procedures. One method of independent verification is allowing employees to make qualified education loan payments through payroll deduction.
- Annual Contribution Limits: The total amount of an employee’s QSLPs for a given year is subject to the annual contribution limit and is reduced by the employee’s elective deferrals for the year.
- Claim Deadlines: Plans may establish a single QSLP match claim deadline for the plan year or multiple deadlines, including, but not limited to quarterly deadlines, as long as each deadline is reasonable.
- Contribution Frequency: QSLP matches can be contributed at a different frequency than elective deferral matches, provided that QSLP match contributions are made at least annually.
- Effective Date: The notice applies to plan years beginning after December 31, 2024. For plan years before January 1, 2025, a plan sponsor may rely on a good faith, reasonable interpretation of Section 110 of the SECURE 2.0 Act. “The guidance in this notice is an example of a good faith, reasonable interpretation of section 110 of the SECURE 2.0 Act.”
The Treasury Department and IRS anticipate issuing proposed regulations with respect to Section 110 of the SECURE 2.0 Act, and invite public comment generally as well as on several topics highlighted in Notice 2024-63.
Disclaimer: The information contained herein is not intended to be construed as legal advice, nor should it be relied on as such. Employers should closely monitor the rules and regulations specific to their jurisdiction(s) and should seek advice from counsel relative to their rights and responsibilities.