First 401(k) Provider Wades Into Uncertain Student Loan Program

Mid-sized 401(k) provider Betterment LLC will launch the nation’s first commercial product tying qualified student loan repayments with employer retirement plan matches, just three weeks after the congressional provision allowing that option took effect.

The recordkeeping platform hopes to market the product to employers wanting to help their younger workers get a head start on savings by treating the student loan payoffs as retirement plan contributions.

“We know that student debt can be a major impediment to saving for retirement,” said Betterment CEO Sarah Levy.

Betterment’s decision to roll out a student loan matching product bucks an industry trend that has treated the congressional provision with caution pending further clarification from federal regulators. Several key optional provisions under the SECURE 2.0 Act (Pub. L. No. 117-328) Congress passed in December 2022 have generated little interest from employers who are worried about becoming regulatory test subjects as the IRS and US Labor Department work out the kinks.

Betterment’s 401(k) student loan matching product already has some early adopters, said Edward Gottfried, senior director of product management at Betterment at Work, the company’s employer-tooled retirement services delivery platform.

The company already offers student loan integration on its employee-facing web portal, complete with options to allow employers to contribute up to $5,250 tax-free to directly pay down a worker’s debt—a program first offered under the 2020 CARES Act (Pub. L. No. 116-136). Adding a SECURE 2.0 matching program seemed like a logical step, Gottfried said.

“I think there’s something really powerful about an employer planting a stake in the ground and saying, ‘This is hard, and we’re going to help you do it,’” he said. “Being able to say, ‘Fine, stay on top of the thing that is an obligation that you have to meet, and we will meet you where you are and help to chip away at your retirement’ introduces the idea that maybe you can do both. It’s possible to do both.”

Betterment is prepared to modify its program once the IRS in particular sets a rubric for the program, Gottfried added. The company felt comfortable moving forward both because the fundamental concept outlined in SECURE 2.0 is straightforward, and because Betterment’s student loan integration options are highly adaptable.

The American Retirement Association sent the IRS a letter on Jan. 22 asking the IRS to issue clarifying guidance on the student loan matching repayment program under SECURE 2.0, specifically regarding participant certification. It’s still unclear what type of loans qualify for the program, under whom the loan must be taken out, and lengths to which an employer must go to clarify that information.

Guidance will assist sponsors and service providers such as Betterment to adopt the matching programs, “promote compliance with the tax code, and improve economic efficiency by reducing the complexity and burdens of the employer,” the letter states.