IRS Issues Guidance on Matching Contributions for Student Loan Payments

Background

On August 19, 2024, the IRS issued Notice 2024-63 (the “Notice”) to provide highly anticipated interim guidance on Section 110 of Secure 2.0 Act (“Secure 2.0”), which was enacted in 2022. Secure 2.0 amended the definition of matching contributions to allow an employer to make matching contributions beginning in 2024 to 401(k), 403(b), governmental 457(b) and SIMPLE IRA plans if an employee is making certain payments on student loans in addition to the normal elective contributions. The payments must be Qualified Student Loan Payments, meaning they must be made on a Qualified Educational Loan for Qualified Higher Education Expenses (“QSLP”). To be a Qualified Educational Loan, the loan must pertain to certain eligible educational institutions. To be Qualified Higher Education Expenses, they must be incurred on behalf of the employee himself or herself, a spouse, or dependent of the employee at the time incurred. Generally, Qualified Higher Education Expenses include the Cost of Attendance (including but not limited to tuition and fees, housing, books, etc.) at an eligible educational institution. An employee’s annual QSLPs are limited to their annual retirement plan elective deferral limit reduced by their elective deferrals for the year. This amount is also subject to annual certification requirements. 

To be eligible for matching contributions related to QSLPs, the specific defined contribution plan document must provide that: 

1. matching contributions on elective deferrals are at the same rate as QSLPs; 
2. matching contributions on QSLPs are only available if the employee is otherwise eligible to receive matching contributions on elective deferrals; 
3. all employees eligible to receive matching contributions on elective deferrals are eligible for matching contributions on QSLPs; and 
4. matching contributions on QSLPs vest in the same manner as on elective deferrals. 

New Guidance 

The Notice provides questions and answers regarding QSLPs generally, employee certification of QSLPs, what are reasonable QSLP matching contribution procedures, QSLP ADP testing, and other miscellaneous issues. Below is a summary of the answers provided by the Notice. 

• A Qualified Educational Loan is considered the employee’s if the employee has a legal obligation to make payments on the loan. 
• An employee’s maximum QSLP for a year differs depending on the type of retirement plan involved. 
• A plan cannot limit QSLP matching contributions only to certain qualified education (e.g., for an employee’s own education, a particular degree program, or at a particular school). 
• A plan with QSLP matching contributions cannot exclude matching contributions on one of elective deferrals or matching contributions even though they are still eligible for the other. 
• A QSLP matching contribution for a plan year can only be based on payments during that plan year. 
• A certification for a QSLP applies only for that particular payment. A plan may require separate certifications for each payment intended to be a QSLP. 
• Certification requires the plan to receive certain information through affirmative certification by the employee. Some required information may be obtained by independent verification.  
• A plan may establish any reasonable administrative procedures to implement QSLP matching contributions. 
• A plan may establish any number of QSLP matching contribution claim deadlines during the year as long as they are reasonable.  
• A plan may rely on an employee’s annual certification that a Qualified Educational Loan payment is a QSLP. 
• A plan with QSLP matching contributions can apply ADP testing for all employees or a separate ADP test for employees receiving QSLP matching contributions and a main ADP test for employees that do not receive QSLP matching contributions. 
• QSLP matching contribution rules apply to SIMPLE IRAs in a similar manner as 401(k), 403(b), and governmental 457(b) plans. Furthermore, if a QSLP matching contribution rule does not apply to a SIMPLE IRA, it would not apply to matching contributions for a SIMPLE IRA. 
• QSLP matching contributions can be added to certain safe harbor plans as a mid-year change. 
• QSLP matching contributions can be contributed at different frequencies than elective deferral matching contributions so long as QSLP matching contributions are made at least annually. 
• Plans are not required to provide QSLP matching contributions on a rolling basis.  

The Notice applies for plan years beginning in 2025. Proposed Regulations are forthcoming. The Notice may be relied upon in the meantime. The IRS is currently welcoming public comments. 

This article was written for general informational purposes and summarizes tax and employee benefits laws. As such, it should not be relied upon for compliance with the Internal Revenue Code or ERISA.   

Should you have questions about matching contributions on student loan payments, please contact your BrownWinick attorney or one of our employee benefits attorneys, as listed below: