Starting in 2024, a new provision under Section 110 of the SECURE 2.0 Act allows employers to offer matching contributions to 401(k), 403(b), governmental 457(b) plans, and SIMPLE IRAs based on employees’ qualified student loan payments (QSLPs) instead of their traditional elective contributions. This change aims to help employees who are burdened by student loans and may not have extra funds to contribute to their retirement plans.
The IRS recently issued Notice 2024–63, providing interim guidance in a question-and-answer format. This guidance covers various aspects such as eligibility, annual certification, testing procedures, and the administration of plans that include QSLP matching features.
What is a Qualified Student Loan Payment (QSLP)?
A QSLP is a payment made by an employee towards a qualified education loan during a plan year. The loan must have been incurred to pay for the employee’s, their spouse’s, or their dependent’s higher education expenses. To qualify for a QSLP match, the payment must meet specific criteria, including being legally obligated and certified by the employee.
How Does the QSLP Matching Work?
Employers can match QSLPs at the same rate as traditional elective deferrals, and these contributions will follow the same vesting schedule. The guidance offers flexibility in how employers can administer these matches, including the frequency of contributions and the certification process.
Why This Matters
This new option is particularly beneficial for employees who are paying off student loans and may not be able to contribute to their retirement plans. By offering a QSLP matching feature, employers can help these employees build their retirement savings without requiring them to make elective deferrals.
The guidance also outlines options for performing ADP (Actual Deferral Percentage) testing and provides insights into how to manage the certification process effectively. This ensures that the plan remains compliant while offering this new benefit.
Looking Ahead
As employers consider whether to add this feature to their retirement plans, they will need to decide on the best certification process, who will handle it, and which ADP testing method suits their plan. The IRS has also indicated that further regulations are forthcoming, so staying informed will be crucial.
The deadline for adopting amendments reflecting changes under the SECURE Acts, including this new provision, is December 31, 2026 (or 2029 for governmental plans). If you have any questions about how this guidance might impact you or your plan, feel free to reach out for assistance. We will continue to provide updates on these developments as they unfold throughout the year.