Among the growing concerns about the burden of large student loan payments is the impact on retirement savings. Participants who cannot afford to make salary deferrals on top of loan payments have to forgo employer matching contributions as well. SECURE 2.0 offered an option for plan sponsors to help these participants by treating qualified student loan payments (“QSLPs”) as deferrals for purposes of matching contributions. The IRS just issued guidance on this option, in the form of Q&As, in Notice 2024-63 (the “Notice”).
Types of Plans that May Match QSLPs
401(k), 403(b), SIMPLE IRAs or governmental 457(b) plans may include this feature. This summary will address the requirements for 401(k) and 403(b) plans.
Definition of a QSLP
The Notice provides that a QSLP is a payment that is:
- Made by an employee during the plan year in repayment of qualified education loan (an indebtedness incurred by a taxpayer solely to pay qualified higher education expenses of the taxpayer, their spouse or dependent).
- The QSLPs, when combined for the year, cannot exceed the deferral limit under Code Section 402(g) (or if less, the employee’s compensation less elective deferrals they made for the year). The 402(g) limit for $24,000 is 2024 and is adjusted annually for cost of living.
- Subject to annual certification by the employee.
Of special note is that the employee must have a legal obligation to make the QSLP, and be the one who actually makes the payment. So Parent PLUS loans for a dependent would be eligible, but where the employee is a co-signer, the employee must be obligated to make the payments and have actually been the one to pay them.
Setting Limitations on Match Provisions
The Notice also makes clear that QSLP matches must be available to all employees who are eligible to receive elective deferral matches. This means a plan may not:
- Limit the QSLP match to only QSLPs for the employee’s own education (and exclude those for spouse or dependent), or for a particular degree or school.
- Exclude employees eligible to receive a regular match from receiving a QSLP match or from receiving a regular match if they are eligible for a QSLP match. That is, if an employee is eligible for one type of match, they must be eligible for both. Employees may not be excluded from these matches based on which employer in the controlled group they work for, by business unit, division, or location or similar category.
Timing of QSLP Match
Some issues were clarified regarding when the QSLP match must be made:
- A QSLP match can be made on a different schedule than a regular match. For example, even though regular matching is paid each payroll period, the QSLP match could be paid once per year, like a true up. The QSLP match must be made at the same rate (i.e., percentage, limits) as the regular match, but the timing can be different.
- A QSLP match for a plan year may only be made for QSLPs paid during that plan year. So, a QSLP paid in 2024 cannot be matched as part of the 2025 QSLP match.
Certification Requirements
In order to receive a QSLP match, the participant must certify, at least annually, that the payment satisfies the requirements of a QSLP. The Notice gave some specifics:
- If a participant is paying QSLPs for more than one loan, the plan may require a single certification for all loans or separate certifications for each loan.
- The certification must include for each loan:
- The amount of the loan payment;
- The date of the loan payment;
- That the employee made the payment;
- That the loan being repaid is a qualified education loan and was used to pay for higher education expenses of the employee, their spouse, or their dependent; and
- The loan was incurred by the employee.
The first three items above can be verified by affirmative or passive certification of the employee, or by independent verification by the employer. The last two items can only be satisfied by affirmative certification of the employee. These various methods are defined as follows:
- Affirmative Certification: the employee provides the required information and certifies that it is correct.
- Passive Certification: the employer receives the information from the lender; the employee is then given the information and has a reasonable opportunity to correct it. If the information is not corrected within that time period, it is treated as certified by the employee.
- Independent Verification: This can be accomplished by allowing the payment of QSLPs through its payroll system, thereby tracking the payments directly.
The affirmative certification of the last two items can be done one time before the first QSLP match (called “registration”), or with each certification. However, even if the loan is registered, if the loan is refinanced, or the information in the last two items otherwise changes, the employee must submit an updated certification.
If an employee’s certification is later determined to be incorrect after the QSLP match is made, the QSLP match does not have to be corrected. Alternatively, it can be corrected as long as all such situations are handled the same. However, failures in administering the QSLP match must be corrected like any other operational failure in a qualified plan.
Reasonable Procedures
As with many administrative processes under a qualified plan, written procedures are important to ensure consistent application. The Notice provides that a plan may establish reasonable procedures to implement the QSLP match. Whether procedures are reasonable is based on good ole “facts and circumstances” which include whether the QSLP match is effectively available to all eligible employees and promotes compliance with the QSLP match requirements. Some procedures addressed in the Notice are:
Setting Claim Deadlines. An example of a reasonable annual deadline is 3 months following the end of the plan year. A plan may also set multiple deadlines during the year, such as quarterly.
Verification Procedures. A plan may rely on the certification by the employee that the loan payment is a QSLP and not require supporting documentation, or the plan could require verifying documentation for the certification if that is preferred. Whichever process is adopted should be set out in written procedures.
Miscellaneous Issues
The Notice also addressed other issues of interest including:
- Two methods of running the average deferral percentage (“ADP”) Testing, generally testing all employees or running separate tests for employees who receive the QSLP match and another for those who do not.
- Safe harbor plans may adopt this QSLP match provision mid-year, as long as notice and election opportunity requirements are met. This would not be a prohibited mid-year change.
Effective Date and Next Steps
The notice is effective for plan years beginning on or after January 1, 2025. Before that, a reasonable good faith interpretation of the requirements is sufficient. The process outlined in the Notice can be relied upon as an example of a reasonable good faith interpretation.
Employers considering whether to adopt this new provision should consult with their payroll provider and third-party administrator to ensure that those vendors are ready to handle these types of contributions. An amendment to the plan will eventually be required (SECURE 2.0 amendments must be adopted no later than December 31, 2026), written procedures adopted, and vendor systems updated. Special explanatory employee communications regarding the QSLP match are encouraged, in addition to updates to summary plan descriptions. This can be of significant benefit to employees impacted by student loan debt, and employers now have a way to offset one of the harms of such debt, by helping employees save more for retirement. As with any significant change in plan benefits, a full cost-benefit analysis should be run to consider the overall impact of this change.