Employers now have interim guidance on student loans and retirement plans

The IRS provided interim guidance to employers that provide matching retirement plan contributions based on student loan payments, a new benefit courtesy of a 2022 law.

Notice 2024-63, which the IRS posted Monday, implements Section 110 of the SECURE 2.0 Act of 2022 (Division T of the Consolidated Appropriations Act, 2023, P.L. 117-328). It applies to sponsors of

401(k) and similar retirement plans that provide matching contributions based on eligible student loan payments made by their participating employees, the IRS said in a news release.

The SECURE Act allows employers with a 401(k) plan, 403(b) plan, governmental 457(b) plan, or SIMPLE IRA plan to provide matching contributions based on employees’ qualified student loan payments, rather than based only on the employees’ elective contributions to retirement plans, in plan years beginning after Dec. 31, 2023.

A qualified education loan is defined as any indebtedness incurred by a taxpayer solely to pay qualified higher education expenses, subject to the conditions of Secs. 221(d)(1)(A)–(C). Under those provisions, the expenses must be incurred on behalf of the taxpayer, the taxpayer’s spouse, or any dependent of the taxpayer as of the time the indebtedness was incurred; be paid or incurred within a reasonable period before or after the indebtedness is incurred; and be attributable to education furnished during a period in which the recipient was an eligible student.

The notice uses a question-and-answer format with illustrative examples to address plan administration issues, including:

• General student loan matching contribution eligibility rules (including dollar and timing limitations);
• Requirements for an employee certification showing that student loan matching contribution requirements have been met;
• Reasonable student loan matching contribution procedures that a plan may adopt; and
• Special nondiscrimination testing relief for 401(k) plans that include student loan matching contributions.

The notice applies for plan years beginning after Dec. 31, 2024. Plan sponsors may rely on the interim guidance until the IRS issues proposed regulations.

— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.