Recent research has shown almost half of American workers are making student loan payments—whether on their own student debt or toward someone else’s—and the vast majority of those who are say it’s impacting their ability to save for retirement.
The IRS stepped in earlier this month, issuing a private letter ruling (PLR) which will help clear the way for employers to provide a new type of student loan repayment benefit to employees as part of their 401k plans.
In particular, the IRS concluded that the employer could make a non-elective contribution to its 401k plan, where the amount of the non-elective contribution would be based on an employee’s total student loan repayments and would be contributed to the plan in lieu of the matching contributions that would otherwise be made to the plan had the employee made pre-tax, Roth 401k and/or after-tax contributions.
The ERISA Industry Committee (ERIC) responded yesterday, sending a letter to the IRS praising it for addressing the issue but asking for further clarification. As it stands, it’s uncertain if participants’ retirement contributions would be taxed if employers matched employees’ student loan payments with 401k contributions.
“[W]hile we believe that current law allows employers to make contributions to their retirement plans on behalf of workers who repay student loan debt, the IRS has yet to clearly articulate that such contributions will not affect the tax-qualified status of an employer’s retirement plan,” Will Hansen, senior vice president of Retirement and Compensation Policy for ERIC, wrote in the letter. “The recently issued PLR is a significant step in this direction, but we believe that more employers would be encouraged to implement programs similar to the one described in the PLR if the IRS would issue a revenue ruling or other guidance of general applicability on this issue.”
Hansen closed the letter by offering ERIC’s assistance in drafting the ruling.
“ERIC is uniquely situated to work with the IRS to develop such a revenue ruling to make sure that it has the maximum impact in helping workers strapped with student loan debt save for their retirement,” he wrote in conclusion.