Publish Date: February 11, 2025

By: Kelsey Mayo

With student loan debt continuing to burden employees, innovative retirement plan designs can help employers attract and retain top talent while addressing financial wellness.

Thanks to recent IRS guidance under SECURE 2.0, employers can now match student loan payments in their 401(k) and 403(b) plans, providing a powerful incentive for workers to save for retirement while paying down their debt.

Why Employers Want Student Loan Matching

Many employees are forced to prioritize student loan repayments over retirement savings, missing out on valuable employer-matching contributions.

The loss of employer matching contributions reduces the value of the employer’s total rewards program for the employee (potentially increasing the likelihood of turnover). It may prevent or delay the employee from retiring, which can increase costs and cause employee relations issues in the future.

Employers are considering student loan matching programs to:

• Enhance recruitment and retention by offering a sought-after benefit, particularly among younger workers, although also important for mid-career employees who may be taking on the burdens of student loan debt for a spouse or child.
• Boost retirement savings participation for employees who might otherwise defer contributions due to loan burdens.
• Demonstrate commitment to employee financial well-being, fostering greater job satisfaction and loyalty.
• Offer a flexible, cost-effective benefit using existing plan structures with minimal administrative burden.

IRS Guidance: How Student Loan Matching Works

In the past, student loan matching programs were difficult to administer, creating complex nondiscrimination testing for most employers. This is no longer the case following SECURE 2.0, and, thankfully, the IRS provided clear guidance on implementing student loan matching under SECURE 2.0, which makes it significantly easier for employers to incorporate this benefit into their retirement plans.

Here’s how it works:

• Employers can treat qualified student loan payments (QSLPs) as elective deferrals for the purpose of calculating matching contributions. This is a significant development over previous student loan match designs because:

1. The QSLP match can be part of the plan’s safe harbor match design without subjecting the plan to additional nondiscrimination testing.
2. If the plan is not a safe harbor, the QSLP match is included with the standard match on deferrals—thereby simplifying the nondiscrimination testing.

• The QSLP match is designed to mirror the plan’s match on deferrals, including the same eligibility, rate of match, and vesting schedule.
• Employees certify annually that they have made qualifying student loan payments. This is where the IRS provided an incredible amount of flexibility.

1. The eligibility of a loan needs only be certified once and does not have to be recertified each year or for each payment.
2. There are flexible options for certifying payment details of the QSLPs eligible to generate a matching contribution. Any reasonable method to obtain the certification is acceptable, including the following three options the IRS specifically outlined:

• No certification is required for payments made through payroll. If the employer withholds student loan payments and forwards them to the student loan provider, then no additional certification is required from the employee.

• Annual notice of payments verified through a third party. If the employer uses a third party to verify payments (often these services have the employees link their student loan accounts to permit monitoring of payments made), then the employer need only give an annual notice of the payments it received information of and allow the employee an opportunity to correct the information. No action by the employee is required unless the information is incorrect.

• Active employee certification is always permitted. Employers may, of course, simply have employees actively certify their loan payments. In that case, the IRS clarified that the employer could establish reasonable deadlines such as every quarter—and reasonable procedures to minimize the burden of data collection.

These rules afford employers significant flexibility in designing their student loan matching programs. The IRS even noted that the employer can require the use of payroll to be eligible for QSLP match and generally may require verification through a third party (provided accommodations are made if the third party cannot monitor a loan).

This significantly decreases the burdens of implementation and makes these programs more practical to administer.

Next Steps for Employers