More guidance has been issued on matching contributions allowed on student loan payments. Qualified Student Loan Payments (QSLPs) can be treated as elective deferrals in 401(k), 403(b), governmental 457(b) plans and Simple IRAs. Qualified loans include loans for secondary education of employees, the employee’s spouse or an employee’s dependent (at the time the loan was attained). More information can be found in Notice 2024-63 which was issued on August 19, 2024.
There are a lot of rules related to what qualifies as a QSLP and the service providers can help with those facts. But why would a plan sponsor want to (or not want to) include this provision in their qualified retirement plan? What should be communicated, as financial advisors and industry consultants, to assure that clients understand their responsibilities and what they may need to consider when it comes to adding this entirely optional provision?
The most important reason to include this provision is to help employees who may not be able to save for retirement because they are overwhelmed with their living expenses, including soaring student loan debt. When an employer chooses to match their employee’s student loan payments, they would at least get a start on their retirement savings. It’s important to note that student loan debt is not only an issue for younger employees who are starting their careers but also for older workers closer to retirement age, as some may have taken on debt or co-signed on loans for their children/dependents.
There are some other considerations when it comes to student loan matching for employers. It’s easy to anticipate that many employees will choose to get the employer matching on QSLPs, if offered. While the intention of the provision was to assist younger employees who will use this option, one vital consideration for employers would be determining their employee population who either take on or co-sign Federal or other types of private student loans who may also benefit from using this feature. Many in the within-20-years-to-retirement group are paying on student loans for their children. This can also be complicated as we know that many may not have saved enough for retirement and therefore that additional match could help their account balance, especially if they are also diverting potential deferrals in order to make the payments. That said, employers need to be aware, and we’ll get into this in future articles, the way that more tenured and higher compensated employees could impact resulting Non-Discrimination Testing on these benefits, which could be impactful in an unanticipated manner to the overall health of the plan.
Walgreens announced in October 2024 that they will offer student loan matching of up to 4% starting in 2025. In an analysis of their employee records, almost 30% of their employees (half of which are pharmacists) have some form of student loan debt. Their pharmacists have an average student loan debt of $170,000. A large organization of this scale racing to publicly promote and offer this type of new provision will definitely make other plans consider it and potentially ultimately want to add it!
Medium size and smaller businesses will need to weigh the potential testing results against their potential audience who can benefit and determine the answer for themselves. For more paternalistic organizations, of all sizes, they may be willing to accept a change in their testing results in order to offer a new, innovative, and talent attracting benefit such as QSLPs. It’s easy to suspect that many truly small businesses may be limited by the already significant cost of their benefit packages to offer QSLPs at this time. That doesn’t lift the responsibility of advisors, administrators, and consultants to proactively be holding these educational conversations with their plan sponsors, so they are aware when employees come to them that they are available, and be conversational as to why an organization decided about adopting (or not!) QSLPs, as well as the factors that informed the decision.
Christina Tunison, a retirement plan advisor in the D.C. Metro area states, “We’ve had discussions about broader SECURE 2.0 provisions and especially the optional provisions such as QSLP for two years. Now that guidance and details are coming out, we’re really able to get in and roll up our sleeves and do the analysis for our interested clients to determine the impact of adding QSLP or other optional provisions to their plans.”
New plan provisions are an opportunity to consider an organization’s entire benefit plan and what they are trying to accomplish. However, they should be considered through the full lens of requirements, and not simply superficially by what is proposed – in this case, student loan matching. The measured decisions that Plan Sponsors must make with their advisor/consultant, third party administrator, and recordkeeping partners should be within the full line of sight to the benefits and the considerations of making the change.
SEE ALSO:
Walgreens Launches Student Loan 401(k) Match Program
IRS Issues Guidelines on Retirement Matches for Student Loan Repayments
Older Workers’ Retirement Security Threatened by Student Debt Hurdles