IRS Releases Guidance on Matching Contributions for Qualified Student Loan Payments

On August 19, 2024, the IRS released Notice 2024-63, providing guidance in the form of Q&As regarding employer matching contributions for “qualified student loan payments” (QSLPS) made by employees participating in 401(k) plans. The SECURE 2.0 Act of 2022 (“SECURE 2.0”) permits plans that include matching contributions to provide such contributions based on certain student loan payments, as opposed to basing them exclusively on elective deferrals (or Roth contributions) as has been customary, effective for plan years beginning after December 31, 2023 (see our blog for general information).

The Notice applies for plan years beginning after December 31, 2024. Plan sponsors may explicitly rely on the Notice pending any further guidance. Prior to January 1, 2025, sponsors may rely on the Notice or a reasonable, good-faith interpretation of the applicable SECURE 2.0 provisions.

What’s the Change, in a Nutshell?

Under most 401(k) plans, employers may match employee contributions (pre-tax elective deferrals and/or after-tax Roth contributions), usually at a specified rate (for example, 50, 75 or 100 percent of the amount contributed by the employee). SECURE 2.0 provides that employer matching contributions may now also be made based on QSLPS if certain requirements are met. Further, QSLPs may be taken into account for certain purposes under applicable nondiscrimination testing rules.

What are “Qualified Student Loan Payments” (QSLPS)?

Broadly defined, QSLPS are described as any indebtedness (subject to certain limits) incurred by the employee solely to pay a “qualified education loan”, as defined below, for the employee, their spouse or their dependent.

What is a “Qualified Education Loan”?

The Internal Revenue Code generally defines “qualified education loan” as any indebtedness incurred by a taxpayer solely to pay qualified higher education expenses incurred on behalf of the taxpayer, the taxpayer’s spouse, or any dependent of the taxpayer as of the time the indebtedness was incurred, and subject to certain other conditions.

What’s in the Notice That I Need to Know About?

The following is a general overview of the provisions in Notice 2024-63 most likely to impact 401(k) plans choosing to adopt a QSLP matching contribution feature:

• Annual Limit. The total amount taken into account for an employee’s matching contribution, which includes both QSLPS and regular elective deferrals, may not exceed the lesser of:
  • The annual elective deferral limit in effect for the year ($23,000 for 2024); or
  • The employee’s compensation for the year.

• Legal Obligation to Repay. For a “qualified education loan” (see above) to be treated as incurred by an employee, the employee who makes a payment on such loan must have a legal obligation (for example, as a co-signer) to make the payment under the terms of the loan.
• Uniform Treatment of Matches. Plans that provide matches for QSLPS generally must match all QSLPS and must provide QSLP matches to all employees who are eligible to receive regular elective deferral matches —
  • A plan may not limit QSLP matches to certain qualified education loans, such as, for example, loans for an employee’s own education, for a particular degree program, or for attendance at a particular school;
  • Similarly, a plan may not exclude individual employees from QSLP matches based on factors such as the employee’s business unit, division, location, or similar criteria.

• Employer matching contributions made for QSLPS during a given plan year must be based on qualified education loan payments made within the same plan year.
• Employees must certify that the payment satisfies the QSLP requirements. The certification generally must include:
  • The payment amount;
  • The payment date;
  • An attestation that the employee has made the payment;
  • An attestation that the loan is for qualified education expenses incurred by the employee, their spouse or their dependent; and
  • An attestation that the employee incurred (or is responsible for payment of) the loan.
• Administrative Procedures. Plans may establish reasonable administrative procedures to implement a QSLP matching contribution feature —
  • Whether such procedures are “reasonable” is based on all relevant facts and circumstances, including (1) whether QSLP matches are effectively available to all eligible employees, and (2) whether the procedures foster compliance with all legal requirements.
• Nondiscrimination Testing. Generally, plans may choose to perform:
  • A single actual deferral percentage (ADP) test for all employees under the plan; or
  • Two separate ADP tests, one for employees who receive QSLP matches, and one for employees who do not receive such matches. (Information about ADP and other nondiscrimination testing is available on the Dashboard.)

• Other Topics. Among some of the other topics of interest addressed in Notice 2024-63 are:
  • Midyear changes to plans made to adopt QSLP matching contributions;
  • Frequency of matching contributions for QSPS vis a vis matching contributions for regular elective deferrals; and
  • Internal plan deadlines for the submitting of QSLP matching contribution claims.

Comments. The U.S. Department of Treasury and the IRS welcome public comments on Notice 2024-63, particularly with respect to certain areas specifically identified on pages 25 and 26. Comments should be submitted in writing, either electronically via the Federal eRulemaking Portal at www.regulations.gov (type “IRS Notice 2024-63” in the search field on the Regulations.gov home page to find this notice and submit comments); or via regular mail to:

Internal Revenue Service
Attn: CC:PA:LPD:PR (Notice 2024-63)
Room 5203
P.O. Box 7604
Ben Franklin Station
Washington, D.C. 20044.

Comments must be submitted on or before 60 days after the date of publication in the Federal Register, and should include a reference to Notice 2024-63.

This article is not meant to offer a detailed analysis of Notice 2024-63 or the legal rules relating to plan contributions, QSLPS, or other requirements applicable to 401(k) plans or other types of retirement plans (such as defined benefit plans, governmental plans, individual retirement accounts or 403(b) plans). As always, be sure to consult with your own ERISA attorney or other professional advisor for individualized advice with respect to your plan’s unique situation.