Perspectives : DC Retirement | May 29, 2024

Employer matching contributions on student loan repayments

Read time: 4 minutes

More than 43 million Americans have student loan debt, with average balances of more than $37,000.¹As employers face an increasingly competitive job market, many are considering how to help employees reduce and manage their student loan debt.

SECURE 2.0 student loan match

Two recent events have changed the student loan debt landscape for employers.

In August 2018, the Internal Revenue Service (IRS) released the details of a private letter ruling (PLR) for Abbott Laboratories on student loan repayments and 401(k) plans. The PLR allowed Abbott Labs to treat student loan repayments as if they were elective deferrals, which meant that employees could receive employer contributions. Proposals began appearing in Congressional bills that would allow 401(k) plans to treat student loan repayments as if they were elective deferrals and provide matching contributions on them.

On December 29, 2022, President Biden signed the SECURE 2.0 Act into law as part of the Consolidated Appropriations Act, 2023. Beginning with the 2024 plan year, SECURE 2.0 lets employers make matching contributions on employees’ student loan payments, even if those employees aren’t contributing to their employer-sponsored retirement plan.

Several industry groups have asked the IRS for guidance on student loan match repayments, specifically regarding participant certification, the types of loans that qualify for the program, and to what extent employers must go to confirm that information.

Student loan debt education, refinancing, and direct payments

Employers can also consider student loan benefits beyond those offered in SECURE 2.0. For example, employers may offer student loan debt counseling, coaching, and educational services. In addition, employers can provide employees with access to student loan refinancing and federal loan consolidation.

The Consolidated Appropriations Act, 2021, allows employers to make tax-free contributions of up to $5,250 a year to their employees’ student loan debt. Some employers pay a fixed dollar amount benefit (for example, $100/month) directly to the employee’s student loan servicer or to the employee to help reduce the student loan debt balance and accelerate the payoff date.

Enhancing employees’ financial wellness

Companies contemplating student loan benefits should also consider whether to integrate the benefits into the employer-sponsored retirement plan, offer them outside of the plan, or provide a combination of both. Offering a student loan reimbursement program or including a benefit within a plan holds promise for employers looking to enhance their financial wellness programs. Plan sponsors should weigh several factors before adopting in-plan student loan benefits, including cost, administrative complexities, and the current savings behaviors of their participants.

Vanguard can help you with industry-leading statistical analysis and benchmarking of student loan debt. Ask your Vanguard representative for information about the student loan services offered through our relationship with Candidly.

LEARN MORE

¹ Investopedia, Student Loan Debt: 2023 Statistics and Outlook, February 6, 2024.

Notes:

Student loan debt services are provided by Candidly. Candidly is not affiliated with The Vanguard Group, Inc., Vanguard Marketing Corporation, or any of their affiliates.
The student loan debt services do not provide investment advice or recommendations, but rather, student loan debt management guidance and education.