IRS Issues Guidance on Student Loan Retirement Match

The IRS recently issued new guidance that significantly impacts employers and employees. Notice 2024-63 covers the Secure 2.0 Act’s provision allowing employers to make matching contributions to employees’ retirement accounts, such as 401(k), 403(b), SIMPLE IRA, and governmental 457(b) plans, based on qualified student loan payments (QSLPs).

Notice 2024-63, which the IRS posted on August 20, clarifies several critical aspects of the program implementation. It defines QSLPs, eligible plans, and employee certification requirements. Importantly, it emphasizes that QSLP matching must be offered to all employees eligible for regular matching contributions.

The guidance also addresses administrative issues, allowing plans to set reasonable deadlines for QSLP claims and choose between different certification methods. While plans can generally rely on employee certifications, they have the option to implement verification procedures. Employees must be given reasonable time to certify their loan, even if the employer’s preferred method doesn’t verify it initially.

Key Points for Plan Sponsors and HR Teams

Frequency of Certification of QSLP

A plan may require a separate certification (typically monthly) for each qualified education loan payment intended to qualify as a QSLP, or they may permit an annual certification that applies for all qualified education loan payments intended to qualify as QSLPs for a year.

Information Required for Certification of QSLP by the Plan

•   The amount of the loan payment

•   The date of the loan payment

•   That the employee made the payment

•   That the loan being repaid is a qualified education loan and was used to pay for qualified higher education expenses of the employee, the employee’s spouse, or the employee’s dependent

•   That the employee incurred the loan

Recommended: Helping Employees Make Smart Student Debt Decisions: The Urgent Need for HR Support

Timing of Certification of QSLP by the Plan

•   Within 2.5 months after the plan year ends: Employers are permitted to establish reasonable procedures and deadlines for collecting annual information (items 1-3 above) related to QSLP matches. These deadlines can be set no later than 2.5 months after the plan year ends, as long as they are reasonable and provide employees with sufficient opportunity to gather and submit the necessary documentation.

•   Once per loan: For items 4 (that the loan is an eligible, qualified education loan) and 5 (that the employee incurred the loan), certification is required only once per loan and does not need to be renewed each year unless the loan is refinanced or the relevant information changes. In such cases, updated information must be provided to the plan.

Methods for the Certification of QSLP

•   Self-certification: Employees can provide affirmative certification for all necessary criteria. The consequences of an employee error (intentional or unintentional) have not been spelled out by the IRS. (The Treasury Department and the IRS are requesting comments — see below, in particular requests 1 and 3 — which may impact the certification processes for future plan years.)

•   Plan-certification: Plan sponsors may independently verify the specifics of loan payments (such as the amount and payment dates), ensure these payments were made by the employee (e.g., via payroll deductions), and require employees to affirm that the loan being repaid is a qualified education loan they incurred.

•   Third-party service provider-certification: Details regarding loan payments can be sourced through third-party service providers or from the student loan providers, with employees passively confirming the accuracy of this information and that they are the ones making the payments. Additionally, employees must actively affirm that the repaid loan is a qualified education loan they incurred.

Paperwork Reduction Act Notice

The guidance also provides clarity on the expected administrative burden that the IRS believes this certification process will add to the plan sponsors/plan administrators:

•   Estimated number of respondents: 158,000 to 617,000

•   Estimated frequency of responses: Annually

•   Estimated average time per response: .25 hours (or 15 minutes)

•   Estimated total annual burden: 39,500 to 154,250 hours

That means that if you have 1,000 employees enrolled, the IRS believes it will take you around 250 hours to complete the administrative paperwork associated with administering the end-of-year reconciliation for the plan. This equates to ⅛ of a Benefits employee’s time for the year, which could be challenging given all of the other end-of-year administrative actions that must be completed simultaneously.

Recommended: Employer Insights on Student Loan Benefit

Timing of Guidance

It is important to note that this guidance is effective for plan years starting after December 31, 2024. For plan years that begin before January 1, 2025, and offer this provision, plan sponsors can depend on good faith, reasonable interpretation of section 110 of the Secure 2.0 Act. The instructions provided in this notice serve as an example of such a good faith, reasonable interpretation.

Call for Comments

The guidance also notes that some questions remain. The IRS is seeking comments on areas like passive certification, QSLP matching frequency, and applying these rules to SIMPLE IRA and 401(k) plans.

In particular, the Treasury Department and the IRS request comments on:

•   Whether additional guidance would be helpful relating to passive certification or independent verification

•   Whether, for a plan that provides for QSLP matches to be made more frequently than annually, guidance would be helpful in the case of an employee who receives a QSLP match early in a year before it is known whether subsequent elective deferrals will reduce the employee’s maximum QSLP for the year

•   Whether additional examples of reasonable procedures would be helpful with respect to QSLP matches

•   Whether additional guidance would be helpful concerning the application of the QSLP rules to SIMPLE IRA plans

•   Whether additional guidance would be helpful concerning the application of the QSLP rules to SIMPLE 401(k) plans

Comments may be submitted electronically via the Federal eRulemaking Portal. The IRS says that it plans to release proposed regulations offering further guidance on section 110 in the future. Until that time, plan sponsors should rely on this notice.

Recommended: Navigating the New Terrain of Student Loan Benefits

The Takeaway

This development is significant as it offers a new way for employers to support employees burdened with student debt while promoting retirement savings. It also adds another layer of complexity to retirement plan administration, requiring careful consideration of the IRS guidance.

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Photo credit: iStock/damircudic

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