As mentioned in IR-2024-217, the IRS has released interim guidance in late August 2024 allowing that employers with retirement plans (401(k) plan, 403(b) plan, governmental 457(b) plan or SIMPLE IRA plan) can provide matching for employees payments to their student loans in plan years beginning Dec 2023.
Previously the employer matching was only if the employee was contributing to the retirement plan. For example, the employer might match the first 4% of salary contributed and contribute another 4%. In this case, if the employee had a gross salary of $100,000 and contributed $4,000 to the 401k or similar retirement vehicle, then, the employer would match and contribute another $4,000 resulting in a total of $8,000 contributed for retirement. In the taxable income of the employee, the salary taxed would be $96,000 ($100,000 minus the deferred traditional retirement contribution of $4,000).
Now, this interim guidance allows matching for the student loan payments to generate a matching contribution in the retirement plan. Using the example above, imagine the employee had paid $6,000 in student loan payments (same gross salary of $100,000 as above), then, it would generate a matching of $4,000 (imagining the maximum matching is 4% of salary). As a result, even if the employee did not directly contribute to retirement, there would be a contribution from the employer.
However, the process is still not completely clear as the employer might not be aware of the employee student loan payments unless receipt of an employee certification (this is one of the clarifying points in the interim guidance) providing support of the student loan payments. Note that the employer is aware of the 401k employee contributions as reported in the payroll reports and contributions available in the 401k information, but might not know the student loan payment information unless communicated by the employee. For many organizations, internal procedures should be created to fill out the employee certification so the employer can be aware of the student contribution and make the matching contribution.
We will keep you informed on future updates on this subject and you can contact us if you have questions above this guidance and its implementation.
Link The Tax Adviser – Employers now have interim guidance on student loans and retirement plans
