2022 SECURE 2.0 Legislation Student Loan Debt Payments

“Enacted at the end of 2022 included an expansion of the ability for a section 401(k) or 403(b) plan, or a governmental section 457(b) plan, to provide matching contributions on participants’ student loan payments.  Effective for plan years starting after December 31, 2023, the change can help employees who might otherwise forgo matching contributions to pay off student debt.

Prior to SECURE 2.0, IRS guidance allowed employers to make contributions to a section 401(k) plan on account of student loan payments, but participating employees had to opt out of the regular match and the contributions had to be treated as “non-elective” contributions. This meant that the student loan benefit could not be offered under a safe harbor plan and employees receiving the student loan contribution had to be counted as zeroes for nondiscrimination testing of the regular 401(k) match. These requirements made the benefit unattractive for many employers. SECURE 2.0 solves that problem by allowing qualified student loan payments to be treated like elective deferrals for purposes of a plan’s matching contribution provisions.

The statute specifies the following conditions for employer matching contributions based on qualified student loan payments:

• The student loan payment must be made by an employee to repay a qualified education loan that the employee incurred to pay for qualified higher education expenses (i.e., the cost of attendance at an eligible education institution). Unlike the student loan benefit under section 127 of the Internal Revenue Code (the “Code”), the SECURE 2.0 rule does not specify that the loan be for the employee’s own education. Although not entirely clear, this suggests that a match could be provided on repayments of loans taken by an employee for the education of the employee’s child or grandchild.
• All employees who are eligible for the plan’s regular match must also be eligible for the match on qualified student loan payments, and vice versa.
• The rate of match on qualified student loan payments must be the same as the rate of match on elective deferrals.
• The vesting rules for the match on qualified student loan payments must be the same as for matching contributions on elective deferrals.
• Matched student loan payments count toward the limit on elective deferrals under section 402(g) of the Code (the “Elective Deferral Limit”). Employees may choose to make elective deferrals (pre-tax and/or Roth), qualified student loan payments, or a combination of both, as long as the combined total does not exceed the Elective Deferral Limit.

Procedural Options.  The statute contemplates two types of procedural flexibility for the new match:

• The match on qualified student loan payments may be made at the same frequency as the match on elective deferrals or at a different frequency, as long as the match on qualified student loan payments is provided at least once per year.
• Employers may rely on employees’ certification that eligible payments were made.

Although the new rules will allow qualified student loan payments to be treated as elective deferrals for matching purposes, they generally may not be treated as elective deferrals for other purposes. For example, qualified student loan payments will not be treated as elective deferrals for purposes of the average deferral percentage (“ADP”) test. This means that employees who make student loan payments in lieu of elective deferrals would count as zeroes for purposes of the ADP test. However, the rules will allow separate testing for employees who receive the match on qualified student loan payments, and ADP testing still will not be required for safe harbor plans.” (National Review)

Creating a Student Loan Assistance Policy in Any Organization

“Employers are aware of the effects of student loan debt, according to HR consultancy Buck’s annual Financial Wellbeing and Voluntary Benefits Survey Report, based on input from 164 employers with 500 or more employees, polled from late 2019 through February 2020. Some key findings:

• 41 percent of employers—compared to 23 percent in 2017—said that student loan debt was a top motivator for their financial wellness offerings.
• Student loan repayment contributions were viewed as one of the best solutions for addressing financial stress, ranking just behind financial coaching and supplemental medical plans.” (SHRM)

Additional Information on Current Legislation:

Employer-provided student loan repayment. The CARES Act temporarily allowed employers to provide student loan repayment as a benefit to employees through Dec. 31, 2020. Under the provision, an employer may contribute up to $5,250 annually toward an employee’s student loans, and such payment would be excluded from the employee’s income. The $5,250 cap applies to both the new student loan repayment benefit as well as other educational assistance (e.g., tuition, fees, and books) provided by the employer under current law. The provision is extended through Dec. 31, 2025.

Developing the Policy:

Objective

The objective of this policy is to assist in repaying student loan debt to further the financial well-being of employees.

Policy

The student loan assistance program provides eligible employees up to [$] per month paid directly to the employee’s student loan servicer. Employees are expected to continue to make minimum monthly payments to the loan servicer in addition to the assistance provided under this policy. Student loan assistance is limited to [$] per year with a [$] cap and is reported as taxable income on the employee’s W-2.

Eligibility (Ensure this is Consistent)

Eligible employees include full-time employees who have received a graduate or undergraduate degree within [amount of time] of the date the employee first applies for assistance under this policy. New employees are eligible after [amount of time] of continuous employment with [Company Name].

Student loan assistance payments will continue for employees on an unpaid leave of absence for up to [amount of time].

Loans eligible for repayment assistance include U.S.-based education loans borrowed by the employee for the employee’s own education.

Procedures

Eligible employees must complete a student loan assistance application and provide proof of graduation documentation and loan documentation. Loan documentation must include:

• Employee’s name.
• Loan servicer’s name.
• Loan account number.
• Current balance.
• Required monthly payment amount.
• Monthly payment due date.

The amount of student loan assistance paid to the loan servicer each month will be the employee’s minimum monthly payment or [$], whichever is less.

Student loan assistance payments will begin on the [date] of the month following receipt and approval of a completed application. Employees will receive written notice of approval or denial of the loan assistance application.

Termination

Loan assistance payments will cease immediately upon an employee’s voluntary or involuntary termination from employment with [Company Name] or change in eligibility status, such as a reduction to part-time hours.  Does the employee have to repay any amount paid by the organization if they do not fulfill a certain time with the organization?  Similar to relocation or bonuses.

Create a policy and program that fits the organization and the culture of the organization.  Very few organizations are taking advantage of student loan assistance for employees.  This is a great opportunity to create a unique perk, while recruiting and retaining top talent.  Survey the workforce to understand the financial wellness needs of employees.  Communicate the results and develop programs that will make a positive impact on employees.   

Originally published in 2018

11 Student Loan Repayment Perks Offered by Organizations

Below are 11 of the perks now being offered by organizations throughout the country:

• “Price Waterhouse Coopers (PwC) launched its Student Loan Paydown program in 2016. Forty-five percent of the firm’s 46,000 junior employees (with six years’ experience or less) signed up to receive up to $1,200 annually for six years. The firm has found that this program has become a contributing factor in the job acceptance rate among applicants.
  • Starting this summer, PWC will give employees $100 a month (amounting to $1,200 each year) to help pay down student loans.  The company’s offer is good for up to six years.  That is a big draw for the company, which recruits 11,000 new employees from college on campuses each year.
• Fidelity’s holistic approach to addressing employee student loan debt includes a Student Loan Repayment Program (SLRP) (that pays $2,000 per year with a $10,000 cap), and financial counseling and education for employees at all career and life stages. In the development of the program, Fidelity leaders often heard employees express regret that they wish they had known more when they were in high school and making decisions about how to finance their college education.  In response, Fidelity Labs, an in-house product incubator, created an online education platform called the Student Debt Tool to help employees better understand their situation and their options. The tool includes a student loan refinancing platform to help consolidate loans to achieve lower lending rates. It also offers tools and advice to help employees save for future college costs for themselves and their children.”[i]
• “Freedom 2 Save program works at Abbott, a research and development company headquartered in Lake Bluff, Ill. Full- and part-time employees who qualify for the company’s 401(k) and are also contributing 2 percent of their eligible pay toward their student loans through payroll deductions receive an amount equivalent to the company’s traditional 5 percent 401(k) match, deposited to their 401(k) accounts. The twist is that program recipients will receive the match without being required to make any 401(k) contributions of their own, allowing them to use more of their earnings to pay off student debt.  Abbott’s approach avoids the taxes triggered when an employer directly gives employees funds to help pay off their student loans.”[ii]
• “New York Life recently launched a student-loan repayment program offering up to $10,200 over five years for eligible employees—which tops out at $170 a month.
• Rise Interactive launched its program by offering a loan-repayment contribution of $50 per month.”[iii]
• “Startup lenders CommonBond and LendEDU both pledges to pay off your entire student loan balance, regardless of how much debt you have, if you’re an employee. Common Bond will provide $100 a month and LendEDU $200 a month until your debt is settled. Unfortunately, the odds of being an employee at either company are slim: Common Bond has less than 100 employees and LendEDU has just six.
• Natixis Global Asset Management, the Boston-based division of French investment bank Natixis, rewards loyalty with $5,000 put toward employees’ student loan balance after their five-year work anniversary. They also receive $1,000 a year for the next five years.
• Online homework helper Chegg offers employees a $1,000 annual contribution, after taxes, toward their student loan balance. It also provides an online student loan management tool to help workers maximize their payments.
• Nevada’s Moonlite Bunny Ranch will match their employees’ student loan payments 100% for two months.  When you consider that employees reportedly make about $3,000 a week at the brothel, the program could work out to be a lucrative offer.”[iv]
• “The American Bankers Association said that next month it would begin helping employees with their college-related debts.  The ABA will pay up to $1,200 per year per eligible employee toward student loans, above and beyond salary and any other benefits. The organization, which represents banks that employ more than 2 million people, said it is encouraging each member bank to take a similar step.”[v]

Below are relocation options, currently being offered or being developed: 

• “Rural Opportunity Zones consists of 77 counties in Kansas offer tax waivers and or a student loan payment program up to $15,000.
  • http://www.kansascommerce.com/index.aspx?NID=320
• Niagara Falls, New York is developing a program that could save a student up to $7,000.00 in student loan debt.”[vi]
• Memphis, Tennessee, the first City Government to offer the student loan program.
  • “The 20th largest city in the country, Memphis will contribute $50 a month to the student loan account of any employee who’s worked for the city for at least a year.”[vii]
• “Relocating to Saskatchewan, Canada could save a student up to $20,000.00 in student loan debt if you graduated after 2010.
  • http://www.saskatchewan.ca/residents/education-and-learning/graduate-retention-program/about-the-graduate-retention-program”[viii]

Currently, only 4% of employers are now offering perks outlined above.  As the war for talent continues to increase and turnover continues to be a driving concern in organizations, these perks will grow in popularity.  Will these perks work for your organization?  Maybe or maybe not.  However, 44+ million people with student loan debt is a tremendous labor pool.  Before implementing a program such as this, benchmark options, know the tax advantages and disadvantages and ask your current workforce.  I personally believe there is value in programs such as this and would be happy to work with any organization in implementing a student loan repayment option for the workforce.  It will separate you from your competitors.

“On Aug. 17, the IRS made public its Private Letter Ruling (PLR) 201833012, which was issued to the requesting company on May 22. The letter responds to an unnamed employer that proposed amending its 401(k) plan to offer a student-loan benefit program under which it would make special 401(k) contributions into the accounts of employees who are making student loan repayments.”[ix]

IRS Letter Amending 401(k)

20 Companies that Help Employees Pay Off Their Student Loans (Student Loan Hero)

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[i] https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/employers-explore-repaying-student-loan-debt.aspx

[ii] https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/401k-twist-on-student-loan-aid.aspx

[iii] https://www.shrm.org/ResourcesAndTools/hr-topics/benefits/Pages/launching-student-loan-repayment-benefit.aspx

[iv] http://time.com/money/4261054/employee-student-loan-repayment-programs/

[v] http://time.com/money/4555841/student-loans-employer-benefit/

[vi] “Student Loan Repayment Assistance.”  Burr Consulting, LLC Article. March 2016

[vii] http://time.com/money/4810605/memphis-employee-benefit-student-loans/

[viii] “Student Loan Repayment Assistance.”  Burr Consulting, LLC Article. March 2016

[ix] https://www.shrm.org/ResourcesAndTools/hr-topics/benefits/Pages/IRS-allows-401k-match-for-student-loan-payments.aspx