Employer Use of Student Loan Repayment Match Could Boom or Bust

Under the SECURE 2.0 Act, employers can make matching contributions to retirement plans equal to qualified education loan payments. While those who do so may attract and retain more top talent, providing the benefit would require additional financial and administrative responsibilities related to certifying that the payments meet certain criteria.

To help employers establish manageable programs, the IRS recently issued an initial set of rules, including documentation requirements, for how employers and plans would administer an annual employee loan certification process. The retirement plan and employers would work together to capture and retain this information, and employers would have to implement new procedures to track that data and ensure the program ran properly.

Employers can capture information such as the amount of loans held by employees and the dates payments are made but didn’t necessarily do so in the past. Also, the requirement that verifies an employee made a loan payment can be satisfied if the employer permits an employee to make qualified education loan payments via a payroll deduction.

Another potential deterrent to employers offering this benefit stems from IRS guidance issued last month. It mandates that employers offering this new perk can’t limit it to employees paying off student loans related to their own qualified higher education expenses. Rather, employers must make a matching contribution to their account based on an employee’s payments toward any qualified education loan for themselves, their dependents, or their spouse.

Certain types of employers would likely be more apt to provide the new benefit, particularly industries such as pharmacology and engineering that rely on employees with advanced degrees. These professions often have employees with significant student loan debt and high student loan repayments often discourage employees from making 401(k) contributions.

The student loan repayment matching feature raises issues of fairness, as employees who have outstanding student loan debt receive a benefit that isn’t available to those who don’t.

An employee without student loan debt may instead be “house poor” due to a new mortgage, but they couldn’t receive a mortgage repayment match. The requirement that student loan repayment matches must include co-signed debt of dependent children only increases the issue of equity among employees.

Some employers have eliminated matching contributions and replaced them with a discretionary or increased employer contribution allocated based on each employee’s compensation. It’s a way for employers to contribute to an employee’s account even if they aren’t in a financial position to make their own.

This can be done without the employer having to distinguish between the reasons why an employee is unable to contribute. It also avoids the administrative apparatus of the student loan repayment match process and allows more flexibility and the ability to predict employer cost.

Offering a solution to increase retirement savings while simultaneously paying down student loan debt enables employers to help their employees tackle two opposing financial hurdles. Because employee benefits packages vary based on the needs of employers and employees, employer interest in implementing them as part of their overall benefits offerings remains unclear.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Kristin Esposito is director for tax policy and advocacy with the AICPA.

Stephen Tackney is principal at KPMG’s Washington National Tax Office and a member of AICPA’s employee benefits tax technical resource panel.

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