This Just In ... New Guidance Allows 401(k) Matches for Student Loans
The IRS recently released long-awaited rules that provide employers with clarity on how to implement a popular new 401(k) plan feature: matching contributions for employee student loan payments.
This new IRS notice comes after changes made last year under the SECURE 2.0 Act al-lowed companies to match 401(k) contributions and student loan payments dollar-for-dollar.
Who Can Offer Matches?
The guidance confirms that 401(k), 403(b), SIMPLE IRA, and governmental 457(b) plans can all incorporate student loan match programs. Nearly 10% of employers already provide some sort of student loan repayment benefit, according to an industry survey. Experts predict more companies will add loan-matching given recent updates.
How Much Can Employees Receive?
For 401(k) and 403(b) plans, total yearly stu-dent loan matches per employee are capped at $22,500 for 2024—the same limit as regular 401(k) contribution matches. The limit is slightly lower for SIMPLE IRAs. Additionally, across all plan types, student loan matches cannot exceed an employee's annual compensation.
Match Requirements
The IRS outlined several requirements to align 401(k) matches and student loan matches. First, companies must provide both types of matches at the same percentage rate. For example, a 50% match on 401(k) contributions up to 6% of pay must also apply to 6% of student loan payments.
Additionally, all employees eligible for 401(k) matches must receive eligibility for loan matches. The guidance prohibits excluding individuals based on factors like employer, division, or college degree program.
Administrative Procedures
The notice permits employers to develop reasonable procedures to claim and substantiate matches, such as quarterly submission dead-lines. However, companies cannot impose overly restrictive policies that prevent individuals from obtaining the benefit.
Verification requirements are also flexible. The IRS said plan administrators may rely solely on an employee's annual certification that their loan and payments meet eligibility criteria. Additional documentation can be requested but not mandated.
Testing Relief
For 401(k) plans, the new guidance allows two alternatives for passing annual non-discrimination testing when offering both contribution and loan matches. The options provide flexibility based on differing financial behaviors of highly and non-highly compensated employees.
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