SECURE 2.0 Act: An Attractive Benefit for Helping Employees with Student Loan Debt

SECURE 2.0 Act

Written by Jake Stange

June 7, 2023

A new provision of the SECURE 2.0 Act of 2022 offers employers an attractive benefit and employees of these organizations a way to pay down student debt and participate in long-term retirement savings. When many college graduates are starting their careers, they often carry a significant amount of student loan debt. Often, they choose to pay the debt rather than contribute a portion of their compensation to their employer’s retirement plan. For 401(k), 403(b), 457(b) and SIMPLE-IRA plans, employers can now amend their plans to contribute a match based on the amount of an employee’s student loan repayment. This change is effective for plan years beginning after December 31, 2023.

How to Offer Employer Matching Contributions on Student Loan Payments

Once adopted, employers would apply the same matching formula that is currently used on regular matching contributions to eligible payments made for student loans. Under the new provision, employers would not have to obtain any student loan documents or evidence of payment. Employees just have to certify that they made eligible loan payments on an annual basis. The eligibility for the match, the match rate, and the vesting schedule for matching contributions on student loan payments, must be the same for regular matching contributions in the plan. Also, the amounts considered for the match calculation would still be limited to the overall annual maximum deferral limits, including the elective deferrals made by the employee.

One difference for the actual matching contribution on student loan payments is that the frequency of the matching contributions doesn’t have to be the same as for regular matching contributions, as long as they’re made at least annually. The provision also provides some limited relief with a separate ADP test for employees choosing to make student loan payments. This is because many employees who will likely utilize this provision are non-highly compensated and either contributing at a lower rate or are not making elective deferrals, all of which could negatively impact the ADP test.

Benefits of Offering Student Loan Repayment Match Contribution

There are multiple benefits for both employers and employees when it comes to adopting this provision. Employers can use this as a talent acquisition tool, showcasing their willingness to invest in their employees’ careers. Also, because the employer contributions would be defined as matching contributions, which satisfies the contingent benefit rule, it will make integrating the new provision easier for employers who previously wanted to offer this benefit.

For more information on how to amend your plan to offer this employee benefit, the professionals at Hawkins Ash CPAs can offer the right guidance. Please contact us.

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Jake Stange
I joined Hawkins Ash CPAs as an Associate after interning during the 2020 and 2021 tax season and the summer of 2021. I recently graduated with my Bachelor’s in Accounting. I also passed each section of the CPA exam.

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