Secure Act 2.0 Allows Employers to Make Matching Contributions to Retirement Plans Based on Employees’ Student Loan Payments
August 17, 2023
By: Lisa A. Durham
As discussed in a prior Benefits Alert (see Alert here), the SECURE 2.0 Act has sent ripples through the retirement plan community. For example, starting in 2024, employers will be able to make matching contributions to participants’ retirement accounts if those participants make qualified student loan payments. In order to take advantage of this new opportunity, the retirement plan must be amended to provide:
1. Matching contributions on account of qualified student loan payments must be at the same rate as matching contributions on account of elective deferrals.
2. Matching contributions on account of qualified student loan payments may only be made to accounts of participants otherwise eligible to receive matching contributions.
3. All participants eligible to receive matching contributions on account of elective deferrals are eligible to receive matching contributions on account of qualified student loan payments.
4. Matching contributions on account of qualified student loan payments vest in the same manner as matching contributions on account of elective deferrals.
Here are a few FAQs.
1. What is a qualified student loan payment?
A qualified student loan payment is made by a participant to repay a “qualified education loan.”
2. What is a qualified education loan?A qualified education loan is a debt taken out solely to pay for the attendance at an eligible educational institution (as defined in Internal Revenue Code Section 25A, the “Lifetime Learning” credit) by a participant or a dependent of the participant, which was incurred within a reasonable timeframe and attributable to an eligible student.
3. What is an example of this provision?
Example: John and Sally make $50,000 at Anywhere USA Hospital (“Anywhere”). In the Anywhere 401(k) Plan (the “401(k)”), the hospital matches 100% of employee contributions up to 6% of the employee’s compensation. Sally has zero student loan debt and has decided to take advantage of the 401(k)’s matching policy. John has student debt and can’t afford to make any 401(k) contributions.
Sally contributes 6% of her paycheck to her 401(k) account every pay period. At the end of the year, Sally has contributed $3,000 and Anywhere has made an employer matching contribution of $3,000 to Sally’s 401(k) account. Sally’s total account value at the end of the year is $6,000.
John does not make a single contribution to his 401(k) account this year. However, John makes $10,000 in qualified student loan payments (20% of his compensation). Anywhere, following the new rules from the SECURE Act 2.0, makes an employer matching contribution of $3,000 to John’s 401(k) account. John’s total account value at the end of the year is $3,000.
In this example, Anywhere has followed the requirement of making its matching contributions at the same rate for both qualified student loan payments and retirement contributions. Sally and John both received contributions at the same rate.
Please note that if you are considering implementing this new provision, you need to confirm that both your payroll provider and your 401(k) record keeper are set up to handle it.
As more guidance is issued on SECURE Act 2.0 and employer matching contributions for qualified student loan payments, Krieg DeVault’s Employee Benefits & Executive Compensation Practice will deliver the information that is relevant to your retirement plan and business. If you have any questions or would like to discuss this latest article in more detail, please contact Lisa A. Durham or another member of the group. Please stay tuned for more details.
Disclaimer. The contents of this article should not be construed as legal advice or a legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult with counsel concerning your situation and specific legal questions you may have.
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August 17, 2023
By: Lisa A. Durham
As discussed in a prior Benefits Alert (see Alert here), the SECURE 2.0 Act has sent ripples through the retirement plan community. For example, starting in 2024, employers will be able to make matching contributions to participants’ retirement accounts if those participants make qualified student loan payments. In order to take advantage of this new opportunity, the retirement plan must be amended to provide:
1. Matching contributions on account of qualified student loan payments must be at the same rate as matching contributions on account of elective deferrals.
2. Matching contributions on account of qualified student loan payments may only be made to accounts of participants otherwise eligible to receive matching contributions.
3. All participants eligible to receive matching contributions on account of elective deferrals are eligible to receive matching contributions on account of qualified student loan payments.
4. Matching contributions on account of qualified student loan payments vest in the same manner as matching contributions on account of elective deferrals.
Here are a few FAQs.
1. What is a qualified student loan payment?
A qualified student loan payment is made by a participant to repay a “qualified education loan.”
2. What is a qualified education loan?A qualified education loan is a debt taken out solely to pay for the attendance at an eligible educational institution (as defined in Internal Revenue Code Section 25A, the “Lifetime Learning” credit) by a participant or a dependent of the participant, which was incurred within a reasonable timeframe and attributable to an eligible student.
3. What is an example of this provision?
Example: John and Sally make $50,000 at Anywhere USA Hospital (“Anywhere”). In the Anywhere 401(k) Plan (the “401(k)”), the hospital matches 100% of employee contributions up to 6% of the employee’s compensation. Sally has zero student loan debt and has decided to take advantage of the 401(k)’s matching policy. John has student debt and can’t afford to make any 401(k) contributions.
Sally contributes 6% of her paycheck to her 401(k) account every pay period. At the end of the year, Sally has contributed $3,000 and Anywhere has made an employer matching contribution of $3,000 to Sally’s 401(k) account. Sally’s total account value at the end of the year is $6,000.
John does not make a single contribution to his 401(k) account this year. However, John makes $10,000 in qualified student loan payments (20% of his compensation). Anywhere, following the new rules from the SECURE Act 2.0, makes an employer matching contribution of $3,000 to John’s 401(k) account. John’s total account value at the end of the year is $3,000.
In this example, Anywhere has followed the requirement of making its matching contributions at the same rate for both qualified student loan payments and retirement contributions. Sally and John both received contributions at the same rate.
Please note that if you are considering implementing this new provision, you need to confirm that both your payroll provider and your 401(k) record keeper are set up to handle it.
As more guidance is issued on SECURE Act 2.0 and employer matching contributions for qualified student loan payments, Krieg DeVault’s Employee Benefits & Executive Compensation Practice will deliver the information that is relevant to your retirement plan and business. If you have any questions or would like to discuss this latest article in more detail, please contact Lisa A. Durham or another member of the group. Please stay tuned for more details.
Disclaimer. The contents of this article should not be construed as legal advice or a legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult with counsel concerning your situation and specific legal questions you may have.