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Student Loan Guidance Added to Treasury Priority Plan

Guidance on student loan payments under qualified retirement and section 403(b) plans has been added to the updated Treasury/IRS Priority Guidance Plan released Oct. 8. It includes guidance on timing of amendments to 403(b) plans.

 

While the plan does not specify what the agencies are considering, the guidance – which could be issued in the first half of 2020 – improves the outlook for those interested in combining a student loan component with their retirement plans.  

Presumably, the guidance may expand on an IRS private letter ruling (PLR) issued last year permitting a 401(k) plan to be amended to include a student loan benefit program. That ruling allowed an amendment to a plan providing that student loan repayment (SLR) nonelective contributions under the program would not violate the “contingent benefit” prohibition. 

Under that program, full- and part-time employees who qualify for the company's 401(k) – and who are also contributing 2% of their eligible pay toward student loans – are eligible to receive an amount equivalent to the company’s match deposited into their 401(k) plan. Program recipients receive the match without requiring any 401(k) contribution of their own.

But as a PLR, it applies only to the specific plan and issue in question. Ever since that ruling, more employers have expressed interest in implementing a similar benefit, given the increasing student loan debt burden of younger employees just entering the workforce.  

Legislation has also been introduced that would permit 401(k), 403(b), SIMPLE and governmental 457(b) retirement plans to make matching contributions to workers as if their student loan payments were salary reduction contributions.

Lifetime Income Removed

One item that was on the 2018/2019 list that does not appear on the 2019/2020 list is additional guidance on issues relating to lifetime income from retirement plans and IRAs. 

It’s possible this item was removed because Treasury and IRS are monitoring whether the SECURE Act – which includes a provision providing a fiduciary safe harbor for sponsors that want to include a lifetime income option in their DC plans – is enacted. The SECURE Act has been passed by the House and is currently pending in the Senate. 

Other Guidance

The remainder of the 2019-2020 Priority Guidance Plan includes some 200 guidance projects that will be the focus of efforts for the 12-month period that started July 1, 2019, and runs through June 30, 2020.

In addition to the student loan guidance, the employee benefits section of the plan includes an additional 27 items related to retirement, executive compensation, health care and other benefits, as well as employment taxes. As shown on the priority list, guidance on hardship distributions, missing participants and multiple employer plans has already been published. 

A sampling of the key retirement and compensation projects on the priority plan include the following. Note that just because the plan indicates that Treasury and IRS intend to act by June 30, that is not always the case, as some of these are carryovers from previous guidance plans.

Implementation of TCJA

  • Regulations under Code Section 162(m), as amended by section 13601 of the TCJA regarding the limitation on excessive employee remuneration.
  • Regulations relating to the extended rollover period for qualified plan loan offsets under Section 402(c)(3)(C).
  • Regulations under Section 4960, as added by Section 13602 of the TCJA regarding the excise tax on excess remuneration paid by “applicable tax-exempt organizations.” 

Retirement Benefits

  • Guidance relating to certain IRS, Tax Exempt and Government Entities, Employee Plans programs, including the Pre-approved Plan Program, the Determination Letter Program, and the Employee Plans Compliance Resolution System (EPCRS). 
  • Regulations under Section 401(a)(9) updating life expectancy and distribution period tables for purposes of the RMD rules and certain other issues. 
  • Final regulations on hardship distributions under Section 401(k) (published Sept. 23, 2019). 
  • Guidance on student loan payments and qualified retirement plans and Section 403(b) plans. 
  • Guidance on missing participants, including guidance on uncashed checks (published Sept. 3, 2019 in IRB 2019-36 as Rev. Rul. 2019-19). 
  • Guidance on timing of amendments to 403(b) plans (to be published Oct. 15, 2019 in IRB 2019-42 as Rev. Proc. 2019-39). 
  • Regulations updating rules for service credit and vesting under Section 411.  
  • Regulations on treatment of future interest credits and annuity conversion factors under a hybrid DB plan and adjustments under a variable annuity plan for purposes of satisfying certain qualification requirements. 
  • Regulations and related guidance on the unified plan rule for Section 413(c) multiple employer plans (published July 3, 2019).
  • Guidance regarding the aggregation rules under Section 414(m). 
  • Final regulations under Section 417(e) that update the minimum present value requirements for DB plans (proposed regulations were published Nov. 25, 2016). 
  • Regulations relating to the reporting requirements under Section 6057 (proposed regulations were published June 21, 2012).