IRS Notice 2024-63, published Aug. 19, 2024, provides interim guidance for plan sponsors on the SECURE 2.0 Act provision permitting employers to offer matching contributions to their retirement plans — including 401(k) and 403(b) plans — on behalf of employees who make qualified student loan payments (QSLPs) after Dec. 31, 2023. Though proposed regulations are expected in the future, the notice provides interim guidance on a variety of discrete issues involving QSLP match programs and applies for plan years beginning after Dec. 31, 2024 (though plan sponsors may rely on good faith interpretations of the SECURE 2.0 Act legislation before then).
Background
The SECURE 2.0 Act introduced an optional provision allowing plan sponsors to make matching contributions to participants’ retirement accounts based on their student loan payments. If an employee makes a QSLP, their employer can match that payment with a contribution to the employee’s 401(k) or similar retirement plan as if the payment was a salary-deferral contribution. This legislation was designed to help employees balance the need to pay down their student loan debt with the need to save for retirement.
Key Takeaways
According to the notice, a QSLP match feature may be added to a 401(k), 403(b), SIMPLE IRA or a governmental 457(b) plan. A QSLP is a payment made by an employee during a plan year in repayment of a loan incurred by the employee to pay for higher education expenses of the employee, the employee’s spouse or the employee’s dependents. Importantly, the employee must have a legal obligation to make the payment under the terms of the loan. For instance, a cosigner has a legal obligation, but a guarantor does not unless the primary borrower defaults on the loan.
In general, QSLP amounts cannot exceed an employee’s elective deferral limit (less the employee’s elective deferrals) under the Internal Revenue Code, and only an employee’s QSLPs that were made during a given plan year are eligible to be counted for purposes of the employee’s QSLP match for that plan year.
The employee must provide certification to the employer that student loan matching contribution requirements have been met to receive QSLP matches, including:
- the amount of the loan payment,
- the date of the loan payment,
- that the payment was made by the employee,
- that the loan being repaid is a qualified education loan and was used to pay for qualified higher education expenses of the employee, the employee’s spouse or the employee’s dependent(s), and
- that the loan was incurred by the employee.
The employer may require either a separate certification for each payment or permit an annual certification that applies for all payments intended to qualify as QSLPs for a plan year.
If a plan sponsor chooses to implement a QSLP match feature, it may not limit QSLP matches to certain education loans, such as loans for a particular degree program or attendance at a particular school. In addition, all employees eligible for regular matches due to elective deferrals must be eligible to receive QSLP matches, which must be made at the same rate and under the same vesting schedule as the plan’s regular match. However, QSLP matches may be contributed at a different frequency than elective deferral matches, provided they are no less frequently than annually.
Plans that implement QSLP matches are also entitled to special relief from certain nondiscrimination testing requirements. The notice includes examples of administrative procedures and optional actual deferral percentage testing.
What’s Next?
As noted, the IRS intends to publish proposed regulations with additional guidance on QSLP match programs under the SECURE 2.0 Act in the future. It requested comments on certain provisions of this legislation, including whether additional examples of reasonable procedures are needed and whether additional guidance related to passive certification or independent verification would help.