Client Service June 7, 2024

What to Know About Qualified Student Loan Payment Matching

While the IRS has provided guidance on the new provision, there is still clarification needed, according to an expert.

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The capability for employers to match a student loan payment with a 401(k) contribution has been one of the most discussed provisions from the SECURE 2.0 Act, and it went into effect on January 1.

While the IRS offered a framework detailing how the rule operates, questions remain as to implementation, according to an expert adviser discussing the option in a webinar, June 5,, held by third-party administrator The Retirement Advantage.

When it comes to setting up a qualified student loan match, plan advisers and sponsors should be clear on the timing of when the qualified student loan payments may be reported, said Andrew Larson, director of retirement education and advisor practice management at the Retirement Learning Center. Timing is essential, he said, because the timeline for these matching contributions is different than for a traditional 401(k) deferral match.

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“Participants may claim qualified student loan matching after the close of the plan year, so they don’t have to claim pay period by period,” he said. “They can wait until the end of the year, determine their total payments and then claim the employer match. How exactly this will work is unclear now. We’re awaiting further IRS guidance.”

The details for participant end-of-year filing and how plan sponsors should accommodate it in a timely manner is among a few areas Larson said the IRS should offer guidance on. Other areas include how the employer matches will affect plan recordkeeping and discrimination testing, he noted. When it comes to tracking qualified student loan payment matching, Larson said, the payments should be included in the plan’s actual contribution percentage test. The ACP test is a nondiscrimination test that compares the average contribution percentage made into a 401(k) plan by highly compensated employees with that made by non-highly compensated employees. 

The qualified student loan payments themselves, which are made to the loan processor, are not included in the ACP test, but the match should be, Larson noted.

Furthermore, any ACP excesses must be identified and removed, typically within two and a half months after the close of plan year, he said. ACP excess is a situation where the average contribution percentage by highly compensated employees exceeds a specific limit relative to the average contribution percentage for non-highly compensated employees.

However, ACP testing won’t be complete until the close of the 90-day claiming period. The 90-day claiming period typically refers to a time frame within which employees must take action regarding their excess contributions in a retirement plan, such as a 401(k), after the end of the plan year.

When it comes to the level of matching funds that are available, contributions that go above the 402(g) limit, which sets the maximum amount of money employees may defer to their 401(k) plan each year, may not be matched. In 2024, that limit is $23,000.

Effectively, the traditional 401(k) rule for matching, in which you may match only up to the limit, remains in effect, Larson said.

Larson gave the example of State of Maryland employees with access to a 403(b) plan with a 25% employer match. An employee could notify the employer that $23,000 in student loan payments were made in 2024; the  district would then allocate the matching contributions to accounts on February 15, 2025, and the employee’s matching would be calculated up to the 402(g) limit.

More direction on student loan matching will be a focus for the retirement industry in coming months; the ERISA [Employee Retirement Income Security Act] Industry Committee representing employer benefit interests, for instance, recently included it in its list of priority items for the IRS and Treasury Department.

In Practice June 7, 2024

Methods of Addressing Saving Inequity

Panelists at the PLANSPONSOR National Conference discuss how participant data paired with plan design can help address saving disparities in the workforce.

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Plan sponsors with diverse workforces have an opportunity to offer innovate benefits that can address equity issues, including the retirement wealth gap and access to financial wellness solutions, across race and gender through their plans, according to panelists at the PLANSPONSOR National Conference in Chicago.

Options at Thursday’s panel, “Equity in Retirement Benefits,” ranged from plan design decisions to providing benefit details in many different languages, but a key element all mentioned was knowing your participant pool and having the information to address their needs.

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In part to address that need for understanding the equity issues, Pam Hess, executive director of the DCIIA Retirement Research Center, noted a recent collaboration the group did with the Aspen Institute Financial Security Program and Morningstar Retirement to create a dataset, controlling for salary and tenure, that revealed substantial savings gaps.

“When you look at a 55-year-old Black woman versus a white man [of the same age], the Black woman has 36 cents of the dollar saved compared to the white man, controlling for salary [and] tenure,” Hess said. “Those are big gaps.”

Sal Naidoo, deputy managing director at SEIU 775 Benefits Group, which provides retirement benefits to home care workers in Washington state, said his team has been focused on addressing the systemic barriers that workers face to accessing retirement savings.

Naidoo said the union’s employees work, on average, around 114 to 117 hours per month, often face volatility in the hours. The majority of its population are workers of color, first generation immigrants and non-English speaking caregivers.

To serve this diverse population, Naidoo said the group’s plan design includes automatic enrollment for both full and part-time caregivers and provides 100% immediate vesting after completing six months of service. The tactic gets employees into the plan and saving within the early stages of the job.

SEIU also recently introduced in-service distribution options, allowing workers to take distributions while they work to address short-term spending needs, particularly for those who may need to work beyond age 65 but still need access to savings.

“What it boils down to is understanding what the workforce looks like,” Naidoo said. “We only get a certain amount of information from our recordkeeper.”

He said SEIU’s current project includes conducting a demographic survey, asking workers to voluntarily provide information like whether they are a member of the LGBTQ+ community, how many generations are in their household and other specific information in order to better understand the plan participants’ needs.

In addition, Naidoo said SEIU translates all of their plan materials into at least eight different languages and provides five fully translated participant portals.

Beth Pattillo, director of retirement and financial wellness program at Leidos Inc.—a defense, aviation, information technology and biomedical research company headquartered in Reston, Virginia—said her plan has been on a “journey of data collection.”

Despite representing a highly educated and well-compensated population, Pattillo said the company found through a financial wellness survey that people had high levels of financial stress and could not afford $400 emergency expenses.

By delving into participant data, Pattillo also found that while the overall employee contribution rate was 11.2%, Black and Hispanic workers were only contributing between an average of 3% to 5% at younger ages. 

In addition to conducting more surveys, Pattillo said the plan is looking into offering auto enrollment, as well as putting in a non-elective contribution for people who earn less than $90,000 a year.

“A lot of this is about education and data, and we’re just trying to figure out how we can meet people where they’re at,” Pattillo said.

She said the plan is also trying to change the tone of its communications to avoid negative participant reactions. Telling people constantly that they’re not contributing enough to meet the match can make employees feel inadequate, she argued, and it is better to remind employees about the breadth of the company’s benefits offerings, including the plan, in addition to the match.

Pattillo added that Leidos leverages after-tax offering as a way for people to build emergency savings. The company also launched a modified student loan repayment offering in 2020 and is exploring retirement income solutions in 2024.  

“The engagement isn’t always where we want it to be, but what we have found is that those that engage are so passionate about the services we have been providing,” Pattillo said.

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