IRS releases guidance on student loan matching contributions

On August 19, 2024, IRS released Notice 2024-63, providing guidance under SECURE 2.0 on Qualified Student Loan Payment (QSLP) matching contributions. SECURE 2.0 generally allows sponsors to provide matching contributions, under, e.g., a 401(k) plan, for student loan repayments, subject to certain conditions. In this article we provide a brief review of the guidance. What is a QSLP? To be a QSLP (and thereby qualify for matching contribution treatment under, e.g., a 401(k) plan), a loan repayment must: 

• Be made by an employee during the plan year as repayment of “a qualified education loan incurred by the employee to pay for qualified higher education expenses of the employee, the employee’s spouse, or the employee’s dependent” 

• Be in an amount (in the aggregate, and together with regular salary reduction contributions for the year) that does not exceed the Tax Code section 402(g) limit (e.g., the limit on salary reduction contributions under a 401(k) plan – $23,000 for 2024) for the plan year, and  

• Satisfy applicable certification requirements (see below). 

Note that loan repayments by an employee of her spouse’s or dependent’s loan would be covered. Also, repayments by an employee as a co-signer (but not, generally, as a guarantor) of a loan would be covered. All or none coverage A sponsor that adopts a QSLP program must cover all “all employees eligible to receive elective deferral matches under a plan,” and “a plan cannot limit QSLP matches to … payments for an employee’s own education, for a particular degree program, or for attendance at a particular school.” In a plan that covers both collectively bargained and non-collectively bargained employees, however, the plan may exclude, e.g., collectively bargained employees from the QSLP program. Certification To “claim” matching contributions with regard to a loan repayment, employees must certify: (1) The amount of the loan payment;  (2) The date of the loan payment;  (3) That the payment was made by the employee;  (4) That the loan being repaid is a qualified education loan and was used to pay for qualified higher education expenses of the employee, the employee’s spouse, or the employee’s dependent; and  (5) That the loan was incurred by the employee. 

Items (1)-(3) must be certified annually, although the notice provides a procedure for the “passive” (in effect, self-executing) certification where, e.g., loan repayments are made via payroll reduction. The notice provides a procedure for satisfying items (4) and (5) by a one-time “registration” of a loan at the beginning of QSLP repayments. 

ADP testing

Plans with QSLPs may apply just one ADP test for all employees or may test employees that receive QSLP matches separately. For employees that make both loan repayments and regular salary deferrals, the notice provides two alternative testing methods, summarized in the following chart. 

Timing To get QSLP treatment for a given year, loan repayments must be made during that year. Procedures for claiming QSLP treatment, including for providing the required certification, must be reasonable. The notice states that “[a]n annual deadline that is three months after the end of a plan year is an example of a reasonable deadline.” *     *     * The guidance in the notice applies beginning in 2025. For 2024, sponsors may use a good faith interpretation of the applicable provision of SECURE 2.0. IRS states that it intends to at some point issue proposed QSLP regulations and in that regard has asked for comments on (among other things): 

• Whether more guidance is needed on passive certification/independent verification. 

• The timing of QSLPs vs. elective deferrals and applicable limits.  

• Whether more examples of reasonable procedures for claiming QSLP matches would be helpful. 

We will continue to follow this issue.