Tax practitioners and experts are hoping the Internal Revenue Service will flesh out a recently released notice on student loan matching contributions to retirement plans with details including how to fix errors and whether plans may need to be changed depending on how they provide matches.
The IRS released a notice Aug. 19 saying it will release proposed regulations on the student loan matching contributions, but it didn't specify a timeline for their release. The agency's notice included some general eligibility rules and procedures to follow for employers that wish to adopt matching programs. The notice said that it applies to plan years starting in 2025 and that the IRS welcomed feedback on what should be included in the proposed rules.
The Secure 2.0 Act, a retirement policy overhaul enacted in 2022 as part of a year-end spending bill, allowed employers for the first time to make contributions to their workers' retirement plans that match employees' student loan payments.
In addition to the questions on error correction and whether plan designs could need to be altered, practitioners and experts are looking for clarity from the IRS in the proposed rules on what actions employers need to take regarding matches for former employees.
Here, Law360 explores three issues practitioners and observers want the agency to address in the rules.
Error Correction
According to the notice, for student loan payments to qualify for matching contributions, employees must certify that their payments meet the requirements by providing information to the plan including payment dates and amounts and documenting that they took out the educational loan. If a worker's certification is wrong, plans can but don't have to fix a resulting incorrect matching contribution, the notice said. The option not to correct matches isn't available for failures in administering student loan matching programs, according to the notice.
Incorrect certifications and other mistakes including late contributions and untimely plan amendments regarding student loan payment matches will be inevitable, according to Jorge Leon of Michael Best & Friedrich LLP. Plan sponsors can respond to mistakes by following general correction principles in the notice and the agency's employee plans compliance resolution system — a group of programs that plan sponsors can use to fix mistakes in retirement plans to avoid disqualification — as well as general nondiscrimination testing correction principles, Leon said.
However, since qualified student loan payment matches are a new concept, it would help for the IRS to address in regulations any refinements to the compliance resolution system "or the nondiscrimination rules needed to specifically fit the world of QSLP matches," he said.
Plan Designs
The IRS will need to confirm in the proposed rules if they'll apply differently for plans with different match designs, Leon said. The Secure 2.0 provision treats student loan payments as elective deferrals for the purpose of matching contributions under a defined contribution plan. Leon said some plans allow for a match each time a participant defers while others provide matches when the sponsor chooses, he said.
"Because different matches create different nondiscrimination testing compliance strategies, it's important to know as soon as possible whether the basic plan designs should be changed to accommodate a QSLP program," he said.
According to the notice, the U.S. Treasury Department and the IRS are particularly interested in getting comments about topics including the utility of guidance for plans that provide matching contributions more than once a year. That scenario involves workers getting matches early in the year before it is known whether subsequent elective deferrals would reduce their maximum student loan matching payments, the notice said.
Employers can make contributions matching their workers' student loan payments to a set of retirement plans including Internal Revenue Code Section 401(k) and governmental Section 457(b) plans, according to the notice. Generally, workers that can get elective deferral matches have to be eligible for student loan payment matches, the notice said.
...
To read the full Law360 article, please click here.
Related People
Preview Attorney's BiographyJorge is skilled at successfully managing and staffing the full service benefit and compensation needs of clients ranging from small operations to large multinational companies. Clients have entrusted Jorge and his team to oversee the design and administration of their health and welfare programs, executive compensation arrangements, and retirement plans.