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Student loan debt is a significant source of financial stress for borrowers, who face a hefty new line item in their budgets since the pause on student loan repayment ended in October 2023. Recent surveys show that student loan repayment obligations significantly impact how much employees are able to contribute toward their retirement plans, while many employees reduce their contributions or cease investing in their retirement plans altogether. According to CNBC, research has shown that employees who have “a strong financial footing in the short-term and the long-term tend to have longer tenure with an employer.” In an Abbot Laboratories-commissioned survey, 94% of young student-loan borrowers expressed interest in an employer-provided 401(k) contribution as they pay off school loans. In 2018, Abbot introduced its innovative 401(k) matching program “Freedom 2 Save” for employees with student loans, with great results.

The SECURE 2.0 Act of 2022 (SECURE 2.0) attempts to lower the obstacle to saving for retirement. Starting January 1, 2024, employers are permitted, but not required, to make matching contributions to 401(k), 403(b), governmental 457(b) or SIMPLE IRA Plans based on their employees’ “Qualified Student Loan Payments” (QSLP”)[1]. The Senate Committee on Finance SECURE 2.0 summary stresses that these new matching provisions are intended to assist employees unable to save for retirement because they are overwhelmed with student debt, and thus are missing out on available matching contributions for retirement plans.

A “Qualified Student Loan Payment” is defined under SECURE 2.0 as a payment made by an employee to repay a student loan taken to pay for qualified higher education expenses (e.g., cost of attendance including, but not limited to, tuition, fees, books, and supplies[2]). The qualified student loan includes debt taken on by an employee on their own behalf, or on behalf of a spouse, or a dependent[3], such as a Parent Plus Loan.

The Employer’s Matching Contribution for a QSLP must be based on the same formula used to match an employee salary deferral contribution to the Employer’s Plan. For example, if the matching contribution for employee salary deferrals is 50% of the deferral contribution, the match on the QSLP is 50% of the QSLP. The maximum amount of QSLPs eligible for a matching contribution and employee salary deferral contribution for each employee cannot exceed the annual limit for salary deferral contributions ($23,000 in 2024). Matching contributions for QSLPs are subject to the same vesting schedule as other matching contributions. Finally, employee annual certifications that QSLPs have been made must be submitted to the employer before any QSLP matching contribution can be made. It should be noted that the IRS has yet to issue any guidance on the implementation of a QSLP matching program.

Employers may wish to consider implementing student loan repayment matching, as it may be a powerful tool for recruitment and retention. Employers who offer financial benefits such as retirement plans and financial assistance with student loan debt help reduce their employees’ financial stress and improve financial wellness.

If you want to learn more about implementing student loan matching in your retirement plan, or have any questions concerning other SECURE 2.0 provisions, please contact any member of our Employee Benefits practice group.

[1] SECURE 2.0 Section 110

[2] Section 472 of the Higher Education Act of 1965, as in effect on the day before the date of the enactment of the Taxpayer Relief Act of 1997

[3] Internal Revenue Code Section 221(d)