IRS Issues New Guidance on Employer Matching Contributions for Student Loan Payments: What You Need to Know

In a significant move that could reshape how employers support their employees' financial well-being, the Internal Revenue Service (IRS) has issued interim guidance on employer matching contributions made to retirement plans based on employee student loan payments. This guidance, released under Notice 2024-63, implements Section 110 of the SECURE 2.0 Act of 2022, a landmark piece of legislation aimed at enhancing retirement savings opportunities.

Understanding the Interim Guidance

Starting from plan years beginning after December 31, 2023, employers who sponsor 401(k) and similar retirement plans will be allowed to make matching contributions to employees’ retirement accounts based on the student loan payments made by their employees. This is a game-changer for both employers and employees, offering a new way to address the twin challenges of saving for retirement and paying down student debt.

The guidance applies to various types of retirement plans, including 401(k) plans, 403(b) plans, governmental 457(b) plans, and SIMPLE IRA plans. By allowing student loan payments to qualify for matching contributions, the IRS is recognizing the reality that many employees are prioritizing student loan repayment over retirement savings.

Key Points from Notice 2024-63

The IRS guidance provides clarity on several critical aspects of the new rules:

1. Eligibility Rules: The notice outlines the general eligibility requirements for student loan matching contributions, including dollar and timing limitations that employers need to be aware of.
2. Employee Certification: Employees must certify that their student loan payments meet the necessary requirements to qualify for matching contributions. The notice details what this certification process should entail.
3. Plan Administration Procedures: Employers are given flexibility in adopting reasonable procedures for administering student loan matching contributions. This includes guidance on how these contributions should be managed within existing plan structures.
4. Nondiscrimination Testing Relief: The guidance also offers special nondiscrimination testing relief for 401(k) plans that incorporate student loan matching contributions. This ensures that the inclusion of these contributions does not inadvertently violate existing nondiscrimination rules.

What’s Next?

The interim guidance applies to plan years beginning after December 31, 2024, and the IRS has indicated that further proposed regulations will be issued to provide additional clarity. Until these regulations are finalized, employers can rely on the current notice as they begin to incorporate student loan matching contributions into their retirement plans.

The IRS is also seeking public comments on this notice, providing a window for stakeholders to share their insights and concerns before the final regulations are implemented.

Why This Matters for Employers

For employers, this new guidance represents an opportunity to enhance their benefits package and support employees more completely. By aligning retirement savings incentives with the reality of student loan debt, employers can help employees make progress on both fronts—paying down debt and saving for the future.

As we await further details, now is the time for employers to review their retirement plan offerings and consider how these new rules can be integrated into their overall benefits strategy.

For more information, or to learn how this can impact your business, fill out the form below, and the experts at HR Wise can guide you through it.