The SECURE 2.0 Act of 2022 marks a significant shift in retirement savings, especially for employees grappling with student loans. This act allows employers to contribute to their employees' retirement plans based on the employees' student loan repayments. Let's explore the technicalities of this benefit.
Eligibility and Plan Types
Applies to Plans: The provision is applicable to 401(k), 403(b), governmental 457(b) plans, and SIMPLE (Savings Incentive Match Plan for Employees) plans.
Qualified Student Loan Payments (QSLPs): Employers can match QSLPs as if they were regular contributions to the retirement plan. This benefit is for employees who are paying off student loans instead of contributing to their retirement plan.
Limits and Contributions
Contribution Caps: The total of an employee’s student loan repayments and retirement plan contributions can’t exceed annual limits set by the IRS under Section 402(g). For 2023, this limit is $22,500, plus an additional $7,500 for employees aged 50 and above.
Debt Qualification: Only loans for higher education expenses qualify. This includes loans for the employee, their spouse, or dependents.
Certification and Matching Frequency
Annual Certification: Employees must annually certify the repayment of their student loans to be eligible for the matching contributions.
Matching Frequency: Employers can match student loan repayments less frequently than regular plan contributions. However, they must do so at least annually.
Nondiscrimination and Compliance Aspects
ADP/ACP Testing: Adjusted rules apply for Actual Deferral Percentage (ADP) and Actual Contribution Percentage (ACP) testing in non-safe harbor plans. The QSLP match can affect these tests, as it alters contribution patterns among employees.
Equivalent Vesting Schedules: The vesting schedule for QSLP matches must align with that of regular plan contributions, ensuring uniformity in benefit accrual.
Plan Amendment Deadlines
Amendment Deadline: Employers must amend their plans to incorporate these changes by the end of the first plan year beginning on or after January 1, 2025. For governmental and collectively bargained plans, the deadline extends to 2027.
Transition from STU-NECs: Employers transitioning from Student Loan Nonelective Contributions (STU-NECs) to QSLP matches may require separate amendments for each change.
Considerations for Employers
Plan Design and Administration: Employers must consider the administrative complexities of incorporating these changes, including tracking loan repayments and managing elective deferrals.
Employee Communication: Clear communication is essential to ensure employees understand and can take advantage of this new benefit.
SECURE 2.0’s provision for matching student loan repayments offers a novel way for employees burdened by student loans to grow their retirement savings. Employers looking to implement this benefit should carefully review the requirements, limits, and administrative considerations. As always, it’s advisable to consult with a qualified Third Party Adminstrator or Advisor.