IRS issues SECURE 2.0 guidance for 401(k) student loan match

While President Biden’s massive SAVE student loan forgiveness program is on hold, the Internal Revenue Service (IRS) has provided guidance for employers to help employees pay back their student loans while also saving for retirement. On Monday, the IRS issued the highly anticipated guidance for employers wanting to match 401(k) plan contributions to employee’s student loan payments.

“If an employee isn’t able to contribute to their retirement in the 401(k) plan, but they are making their student loan repayments … [employers] are still able to reward them with the employer matching contribution,” said Rob Krupa, head of 401(k) compliance at Betterment.

The IRS Notice 2024-63 implements how employers can match contributions for employees based on their student loan payments. Beginning on December 31, 2023, SECURE 2.0 had permitted employers with a 401(k) plan, 403(b) plan, or SIMPLE IRA to offer matching contributions based on student loan payments, rather than solely on what participants contributed to their retirement plan.

Since SECURE 2.0 created a provision designed to help employees build retirement savings while paying down student debt, plan sponsors have raised questions about their fiduciary duties.

In the new notice, the IRS addresses several plan administration issues regarding matching contributions and student loan payments. For instance, the plan must obtain the following information:

1. The amount of the loan payment
2. The date of the loan payment
3. That the payment was made by the employee
4. That the loan being repaid was used to pay for qualified higher education expenses of the employee, the employee’s spouse, or the employee’s dependent
5. That the loan was incurred by the employee.

The IRS notice also confirms that employers must make matching contributions to student loan repayments under the same manner as the plan’s regular match, including same rates and same vesting schedules, while placing the onus on employees to self-certify, annually, that they are making the student loan payments.

It also contains general student loan matching contribution eligibility rules—including dollar and timing limitations—and guidelines for how an employee should certify to an employer that a loan payment was made.

“While adding the repayment option as a match to the employer 401(k) plan requires some plan amendments,” said Jay Kirschbaum, senior vice president and benefits compliance director at World Insurance, “the new SECURE 2.0 Act regulation adds a sticky way to offer employees a tax-advantaged option to assist with their student loan repayments while building employee loyalty and aiding in the adoption of long-term retirement planning.”

The ERISA Industry Committee (ERIC), which asked the Department of the Treasury and the IRS in June for additional clarity regarding SECURE 2.0 provisions regarding matching student loan contributions, quickly issued a statement in favor of the IRS for the guidance on Monday: “ERIC’s member companies are committed to the financial wellbeing of their employees, including those with outstanding student loans. That is why we lobbied Congress to enact a tax law change allowing employers to make retirement plan matching contributions on account of workers’ qualified student loan payments,” said Andy Banducci, senior vice president for Retirement and Compensation Policy at ERIC.

“We applaud the IRS for issuing interim guidance implementing this change and look forward to providing technical comments to IRS in the coming weeks.”

The IRS notice will apply for plan years starting after December 31, 2024. The IRS said it plans to issue proposed regulations providing further guidance on SECURE 2.0 in the future, but that plan sponsors should rely on this notice until the proposed regulations are issued.

Related: Student loan matching benefit: How SECURE 2.0 now makes it easier to implement

Until then, the IRS is open to public comments on its notice and on the SECURE 2.0 provision. Comments will be due 60 days following publication of the notice, and can be submitted electronically at www.regulations.gov.