The grab bag of retirement provisions in the SECURE 2.0 legislation that was enacted at the end of 2022 included an expansion of the ability for a section 401(k) or 403(b) plan, or a governmental section 457(b) plan, to provide matching contributions on participants’ student loan payments.  Effective for plan years starting after December 31, 2023, the change can help employees who might otherwise forgo matching contributions to pay off student debt.

Prior to SECURE 2.0, IRS guidance allowed employers to make contributions to a section 401(k) plan on account of student loan payments, but participating employees had to opt out of the regular match and the contributions had to be treated as “non-elective” contributions. This meant that the student loan benefit could not be offered under a safe harbor plan and employees receiving the student loan contribution had to be counted as zeroes for nondiscrimination testing of the regular 401(k) match. These requirements made the benefit unattractive for many employers. SECURE 2.0 solves that problem by allowing qualified student loan payments to be treated like elective deferrals for purposes of a plan’s matching contribution provisions.

The statute specifies the following conditions for employer matching contributions based on qualified student loan payments:

  • The student loan payment must be made by an employee to repay a qualified education loan that the employee incurred to pay for qualified higher education expenses (i.e., the cost of attendance at an eligible education institution). Unlike the student loan benefit under section 127 of the Internal Revenue Code (the “Code”), the SECURE 2.0 rule does not specify that the loan be for the employee’s own education. Although not entirely clear, this suggests that a match could be provided on repayments of loans taken by an employee for the education of the employee’s child or grandchild.
  • All employees who are eligible for the plan’s regular match must also be eligible for the match on qualified student loan payments, and vice versa.
  • The rate of match on qualified student loan payments must be the same as the rate of match on elective deferrals.
  • The vesting rules for the match on qualified student loan payments must be the same as for matching contributions on elective deferrals.
  • Matched student loan payments count toward the limit on elective deferrals under section 402(g) of the Code (the “Elective Deferral Limit”). Employees may choose to make elective deferrals (pre-tax and/or Roth), qualified student loan payments, or a combination of both, as long as the combined total does not exceed the Elective Deferral Limit.

Procedural Options.  The statute contemplates two types of procedural flexibility for the new match:

  • The match on qualified student loan payments may be made at the same frequency as the match on elective deferrals or at a different frequency, as long as the match on qualified student loan payments is provided at least once per year.
  • Employers may rely on employees’ certification that eligible payments were made.

Although the new rules will allow qualified student loan payments to be treated as elective deferrals for matching purposes, they generally may not be treated as elective deferrals for other purposes. For example, qualified student loan payments will not be treated as elective deferrals for purposes of the average deferral percentage (“ADP”) test. This means that employees who make student loan payments in lieu of elective deferrals would count as zeroes for purposes of the ADP test. However, the rules will allow separate testing for employees who receive the match on qualified student loan payments, and ADP testing still will not be required for safe harbor plans.

The statute directs the U.S. Treasury Department to issue implementing regulations that cover certain procedural requirements and to promulgate model plan amendments to implement the match on qualified student loan payments. We are hopeful that guidance will be issued sometime in 2023. Be on the lookout for updates.

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Photo of Seth Safra Seth Safra

Seth J. Safra is chair of Proskauer’s Employee Benefits & Executive Compensation Group. Described by clients as “extremely knowledgeable, practical, and strategic,” Seth advises clients on compensation and benefit programs.

Seth’s experience covers a broad range of retirement plan designs, from traditional defined…

Seth J. Safra is chair of Proskauer’s Employee Benefits & Executive Compensation Group. Described by clients as “extremely knowledgeable, practical, and strategic,” Seth advises clients on compensation and benefit programs.

Seth’s experience covers a broad range of retirement plan designs, from traditional defined benefit to cash balance and floor-offset arrangements, ESOPs and 401(k) plans—often coordinating qualified and non-qualified arrangements. He also advises tax-exempt and governmental employers on 403(b) and 457 arrangements, as well as innovative new plan designs; and he advises on ERISA compliance for investments.

On the health and welfare side, Seth helps employers provide benefits that are cost-effective and competitive. He advises on plan design, including consumer-driven health plans with HSAs, retiree medical, fringe benefits, and severance programs, ERISA preemption, and tax and other compliance issues, such as nondiscrimination and cafeteria plan rules.

Seth also advises for-profit and non-profit employers, compensation committees, and boards on executive employment, deferred compensation, change in control, and equity and other incentive arrangements. In addition, he advises on compensation and benefits in corporate transactions.

Seth represents clients before the Department of Labor, IRS and other government agencies.

Seth has been recognized by Chambers USA, The Legal 500, Best Lawyers, Law360, Human Resource Executive, Lawdragon and Super Lawyers.

Photo of Amanda Karpovich Amanda Karpovich

Amanda M. Karpovich is a practice attorney in the Labor Department and a member of the Employee Benefits & Executive Compensation Group. She assists for-profit and not-for-profit entities with their employee benefit programs by counseling clients regarding design, qualification, administration, and compliance issues…

Amanda M. Karpovich is a practice attorney in the Labor Department and a member of the Employee Benefits & Executive Compensation Group. She assists for-profit and not-for-profit entities with their employee benefit programs by counseling clients regarding design, qualification, administration, and compliance issues associated with qualified retirement plans, health and welfare benefits, and fringe benefit programs. Amanda’s experience includes counseling clients regarding fiduciary and governance issues and structures, benefit aspects of corporate transactions, and claims and appeals processes. She also assists clients with preparing plan documents, summary plan descriptions, and other benefit communications.

Amanda frequently counsels clients on health and welfare arrangements, including cafeteria plans, health savings accounts, health reimbursement arrangements, flexible spending arrangements, and wellness programs.  Her experience includes advising clients regarding compliance with ERISA, the Internal Revenue Code, HIPAA, COBRA, MHPAEA, ACA, GINA, Medicare, and state individual mandate laws. Amanda’s health and welfare practice also includes negotiating with plan service providers and managing the qualified medical child support order process on behalf of clients. Amanda has also authored articles regarding health and welfare topics, including those published in the Buffalo Law Journal and Law360.

In addition, she has experience counseling public and private, U.S. and international, companies regarding compliance with the federal and state securities laws implicated when granting shares and other awards under equity compensation plans. She has assisted clients in drafting the securities filings required to register or to exempt such shares and awards with the SEC and the U.S. states and advised public companies regarding SEC disclosure of director and executive compensation and employee benefit arrangements in their annual proxy statements. With a diverse background as a securities and an employee benefits and executive compensation attorney, she is able to counsel clients regarding the interplay between the two types of law.

Amanda is a Board member of Big Brothers Big Sisters of Erie, Niagara and the Southern Tier, is the chair of their Young Professionals Board, and a member of their Governance Committee. She is also a member of the Buffalo Niagara Human Resource Association.

Prior to joining Proskauer, Amanda practiced as an associate in the Employee Benefits and Executive Compensation practice group and in the Securities and Capital Markets practice group at a firm located in Buffalo, New York. While in law school, Amanda served as a Judicial Extern in the United States District Court for the Western District of New York, clerking for Judge Leslie Foschio. She was also selected to receive The New York Bar Foundation’s Trusts and Estates Law Section Fellowship and clerked for Judge Barbara Howe in Erie County Surrogate’s Court.