IRS’s 401(k) Match for Student Loan Repayment Supports Employees

Employees with student loan burdens will benefit from new IRS guidance on student loan debt repayment and retirement contributions allowing them to manage their present and future financial obligations. Employers also stand to benefit from higher employee satisfaction and retention during an ever-growing war for talent.

Student loan debt has become progressively more widespread, affecting nearly 43 million working Americans as of January. The sheer volume of student loan debt in the US—more than $1.74 trillion—has led some to cast the issue as an economic crisis, comparing the patterns presented with the economic downturn seen with the housing crisis in the early 2000s.

Student loan debt repayment and retirement contributions often are viewed as an either-or choice—usually to the detriment of an employee’s retirement savings. The IRS guidance in Notice 2024-63, however, could eliminate an employee’s need to choose between managing debt and accumulating retirement savings, creating a win-win scenario for both employees and employers.

The guidance issued in August relates to the SECURE 2.0 Act for plan years beginning after Dec. 31, 2024. It permits employers to match contributions to an employee’s retirement account based on that employee’s qualified student loan payments.

The main provisions as provided in the question and answer format include eligibility rules containing both dollar figure and timing limitations, employee certification to an employer verifying student loan matching requirements have been met to receive the match, reasonable matching procedures employers may adopt when employing matching contributions based on eligible repayments, and special nondiscrimination testing relief provided for plans containing student loan matching contributions.

A primary advantage of the student loan matching program is supporting employees in their prioritization of paying down considerable debt while also prioritizing investing for retirement savings. With the average federal student loan debt per borrower approximating $38,175, employees may feel pressured to allocate all available funds toward their student loan debt, habitually at the expense of their future retirement needs.

A February 2024 study by the Employee Benefit Research Institute further explained that paying down student loan debt had a negative impact on the amount of contributions being invested for retirement, and as a result, the overall retirement account balance for those paying down student loan debt was less than those without student loan debt.

Traditionally, employees must have contributed to their company’s retirement plan to receive the match. The guidance offers a practical solution by encouraging employee student loan repayment while also allowing those payments to match as retirement contributions, thus potentially eliminating an employee’s need to choose between the two.

As companies can match an employee’s qualified student loan repayment with retirement contributions, employees may feel less pressure to choose between paying down debt and contributing to their retirement fund as the guidance allows for immediate debt repayment efforts coupled with retirement saving strategies.

Over the last few years, employers across many industries have been competing for employees from a retention and talent perspective. Last month, the US Chamber of Commerce noted that as of August 2023, more than 30.5 million workers had resigned from their positions, adding to employers’ war for talent.

As financial stress affects employees both personally and professionally, employers may be able to improve an employee’s outlook on their financial situation. This can also increase employee retention by tailoring employer-offered benefits to include student loan contribution matches. By designing more attractive compensation packages for current and prospective employees, employers may see an increase in overall retention and recruitment acceptance rates by dynamically participating in employees’ overall financial well-being.

Though the IRS is continuing to outline the rules and regulations regarding SECURE 2.0 Act, Notice 2024-63 provides guidance tackling both immediate and long-term financial burdens as well as future retirement goals through the student loan repayment match. Addressing an employee’s financial well-being while tailoring retention and recruitment strategies helps both employees and employers.

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 Gutting is a principal at Forvis Mazars, where she leads the firm’s tax controversy and procedure group.

Caitlyn Meehan is a manager in Forvis Mazar’s tax controversy and procedure group.

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