American Retirement Association Asks IRS for Guidance on Student Loan Matches

One provision in particular in the SECURE 2.0 Act is receiving the lion’s share of attention from retirement plan sponsors and participants. Section 110 allows student loan payments to be treated as elective deferrals for purposes of matching contributions.

Yet guidance on how it will happen is needed from the IRS, something the American Retirement Association (ARA) communicated to the revenue-gathering arm of the federal government in a letter on Jan. 22.

Signed by ARA CEO Brian Graff and Director of Regulatory Policy Kelsey Mayo, the letter noted that Section 110 permits 401(k), 403(b), governmental 457(b), and SIMPLE IRA plans to treat qualified student loan payments (QSLP) as elective deferrals for purposes of calculating matching contributions under the plan.

For a contribution based on a student loan repayment to be treated as a QSLP, the employer must ensure that several requirements are met, including:

• Obtaining information on the student loan repayments made by an employee;
• Ensuring the payments meet the definition of a QSLP, including:
• Coordinating the payments with the employee’s elective deferrals and applicable limits under Internal Revenue Code Sections §§402(g) and 415(c)(3); and
• Obtaining the supporting documentation or certification from the employee;
• Calculating the matching contribution, using the same rate of match as the plan uses for elective deferrals;
• Contributing the matching contributions to the plan; and
• Performing applicable nondiscrimination testing for the plan.

ARA Recommendations

ARA then recommended that the IRS issue guidance related to qualified student loan payments (QSLPs) as follows, which it listed in order of relative priority:

1. Permit a plan to set a deadline for claims that is earlier than three months after the plan year’s end when the plan requires claims to be made on a periodic basis that is more often than annually, and clarify that certain other practices would be reasonable procedures.
2. Confirm that certain operational practices will not cause a plan to have a different rate of match for QSLPs than elective deferrals.
3. Clarify how nondiscrimination testing must be conducted by announcing an ordering rule that treats contributions first as a match on elective deferrals and then as a match on QSLPs and specifying how the disaggregation of employees receiving the QSLP match will apply in certain situations.
4. Specify the content that is required to be in the participant certification, confirm that independent documentation may be requested, and clarify that an employer may (but is not required to) forfeit matching contributions made on QSLPs if the employer determines the certification was incorrect.
5. Permit the match on QSLPs to be made annually, even if the plan’s match on elective deferrals must be deposited more frequently, and permit plans to fund matches based on information collected before certification.
6. Permit employers to match only a designated class of QSLPs.
7. Update the Employee Plans website to provide information on existing guidance related to key definitions relevant to QSLPs.
8. Provide a model amendment for QSLP programs to reduce implementation costs and facilitate adoption.

While the IRS recently issued so-called "grab bag" guidance in the form of FAQs on various provisions contained in SECURE 2.0, it has not yet issued guidance under Section 110 addressing the student loan repayment changes. Section 110 became effective for contributions made for plan years beginning after 2023. 

A copy of the ARA's letter can be found here.