The Student Loan Payment Matching Contribution provision in SECURE 2.0 is one of the most asked-about new features in the law. This is particularly true among our public education clients who are looking for ways to attract and retain teachers, which continues to be a problem for districts nationally post-pandemic.
At a high level, this provision allows employers to provide an employer matching contribution based on student loan payments in lieu of participants making elective deferral contributions to receive the matching contribution. Technically speaking, the loan payments are treated as “deemed” elective deferrals. This feature is available in 2024.
For plan sponsors offering a matching contribution in their plans today, the administration of the provision is pretty straightforward (notwithstanding certain guidance the industry has requested from the IRS). For public school districts that consider adopting a student loan payment match, things can be a bit tricky.
First, the vast majority of school systems that offer 403(b) plans[1] do so as supplemental retirement savings programs, so matching contributions are not typically offered to employees. Districts will need education not just about plan design, but also guidance on the operational mechanics involved. The prevalence of multi-provider plans in K12, and the use of individual annuity contracts and custodial agreements may create other complications.
The question is—how should the industry be advising clients who are interested in adopting this feature?
Plan Documents
The plan document side is simple.
- All IRS pre-approved public education plan documents permit employer matching contributions as a choice .
- Since public education plans are not subject to ERISA, non-discrimination testing is not a concern; school districts can slice and dice match eligibility to target specific employee populations (i.e., teachers) .
- The matching contribution formula must accommodate participants who make elective deferrals or student loan payments .
- TPAs with common remittance systems can support employee and employer contribution sources .
Investment Structure
Addressing the appropriate investment structure to accommodate matching contributions is a more vexing issue. Some individual annuity contracts and custodial agreements can accommodate multiple contribution sources; however, some providers that may require a separate contract to handle an employer match, which is not ideal.
If a school district wants to incorporate a vesting schedule, individual annuity contracts and custodial agreements cannot track vesting, so the investments would need to be held in group annuity and/or group custodial platform product where vesting and forfeitures can be addressed properly. TPAs will need to determine whether the district can provide actual hours worked with contribution files (and investment provider(s) can accept them), or whether using elapsed time for vesting lessens the administrative burden.
Financial advisors must consider the appropriateness of investment products when a matching contribution is added to a plan. Surrender fees, contingent deferred sales charges (CDSCs), and withdrawal restrictions are not suitable. And we cannot forget there is an important servicing component: financial advisors must be at the ready to enroll new participants as they become eligible for the benefit.
The Bottom Line
In summary, this feature offers school districts a new way to attract and retain teachers while also providing retirement savings to employees that cannot defer due to their student loan obligations. As an industry, we need to work together to offer the right solutions to help our clients implement this important benefit.
Mark W. Heisler is the Chief Executive Officer of ADMIN Partners, LLC.
Footnote
[1] We would not recommend offering this feature in a 457(b) governmental plan to avoid contribution aggregation limitation issues and potential vesting complications if the employer match is not immediately vested.
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