SECURE 2.0 codified that for plan years beginning after 2023, 401(k), 403(b), governmental 457(b) and SIMPLE IRA plans can provide matching contributions based on a participant’s repayment of student loan obligations that meet the requirements to be a qualified student loan repayment (QSLP). The Internal Revenue Service (IRS) had previously blessed such a plan design in a private letter ruling in 2018. On August 19, 2024, the IRS issued interim guidance in Q & A format, on such plan design to assist employers in implementing such programs in Notice 2024-63 (Notice).
QSLP. To be a QSLP, the employee-participant must be legally obligated to make the payment of the loan to pay for attendance at an educational institution by the employee, employee’s spouse, or employee’s dependent. The Notice states that a co-signer is legally obligated but a guarantor is only legally obligated when the primary borrower defaults. The employee must certify the payment is a QSLP.
The Notice provides that the plan cannot limit matching contributions to repayments of student loans for only certain employees or for pursuing only certain degrees, or for attending only certain schools. Also, a plan cannot prevent participants who are eligible to receive QSLP matching contributions from also making elective deferrals. Likewise, if a participant makes elective deferrals the participant can’t be precluded from being eligible to receive QDLP matching contributions. In addition, the QSLP matching contributions cannot have requirements stricter than those for matching contributions on elective deferral. A QSLP matching contribution for a plan year may be made omly with respect to QSLP loan repayments made in the same plan year.
Certification. The employee must annually certify the following items (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.
All items that must be certified can be done through the affirmative certification of the employee. Alternatively, items 1-3 can be certified by independent verification by the employer. An example provided in the Notice is where the loan payments are made through payroll deduction and the employer has all the information. Items 1-3 must be certified annually. Items 4 and 5 can only be certified by affirmative certification. However, an employee registering the loan with the plan satisfies this and need not be repeated annually.
The certification requirements can also be met by registering the loan with the plan to certify items 4 and 5, followed by passive certification of items 1-2 to the plan or employer by the lender, and the plan notifying the participant that it assumes item 3 has been satisfied (unless the employer has actual knowledge to the contrary), with the employee given a reasonable amout of time to correct the information in the notice.
Importantly, the notice provides that if an employee’s certification of a QSLP is determined to be erroneous, the match based on that certification need not be corrected.
Matching Procedures. Plans may establish any reasonable administrative features to implement a QSLP match feature. Whether procedures are reasonable depends on all facts and circumstances including whether the matches are effectively available to all eligible employees and whether employees have a reasonable opportunity to collect and furnish claim submission documentation. A plan may establish a single QSLP match claim deadline or multiple reasonable deadlines, such as quarterly.
ADP Testing. A plan that includes a QSLP match feature that is subject to ADP testing may elect to test the QSLP match feature separate from the rest of the plan. There are two methods to test the QSLP match feature separately. Under method 1, all employees who receive QSLP matches are tested separately. If such employees also make elective deferrals, those are taken into account in the separate test and are excluded from the main ADP test. Under method 2, if an employee that receives a QSLP match also made elective deferrals, those elective deferrals are included in the main ADP test and are excluded from the separate test. The two methods are designed to give employer’s flexibility in passing the ADP test. For a safe harbor plan not subject to the ADP test, a QSLP match feature can be added as a mid-year change, provided the notice and election opportunity conditions are satisfied.
Conclusion. The notice applies to plan year beginning after December 31, 2024. For plan years beginning before January 1, 2025, an employer may rely on a good faith, reasonable interpretation of section 110 of SECURE 2.0. The guidance in the Notice is a good faith, reasonable interpretation of that section. Therefore, following the Notice before 2025 will meet the standard. However, it should be noted that the Notice does not se forth the only reasonable, good faith interpretation of the section 110.