SECURE 2.0 Act – Section 110. Treatment of Student Loan Payments as Elective Deferrals for Purposes of Matching Contributions

SECURE 2.0 Act – Section 110. Treatment of Student Loan Payments as Elective Deferrals for Purposes of Matching Contributions

Many employees have to choose between saving for their retirement or making payments on their student loans. Those employees may have a new way to accumulate retirement savings, thanks to a provision included in SECURE 2.0 Act (SECURE 2.0).

Section 110 of SECURE 2.0 allows employers to treat qualified student loan payments (QSLPs) as elective deferrals for the purposes of matching contributions.

Said differently, this provision will enable employers to count payments made on student loans the same as employee retirement plan contributions, thus allowing companies to provide a match into retirement accounts when their employees make loan payments.

Qualified student loan repayments eligible for match cannot exceed the lesser of the maximum deferral limit under Internal Revenue Code (IRC) Section 402(g) ($22,500 in 2023) and IRC Section 415(c) (the maximum annual addition limit, which in 2023 is the lesser or $66,000 or 100 percent of the participant’s compensation).

In addition, the participant must certify annually to the employer making the matching contribution that the loan repayments were actually made.

The key considerations include:

• The provision is not effective until 2024.
• It is optional whether an employer wants to amend its plan to provide matching contributions based on repayment of student loans, QSLPs.
• This provision applies to deferral-based plans such as 401(k)s, 403(b)s, SIMPLE IRAs, and government plans (including 457(b)s).
• A plan must treat the QSLP matches the same as matches on participant deferrals.
• An employer can rely on employee certification of payment.
• A plan may, at its option, test the matching contributions as a part of its general discrimination testing or as a separate group consisting solely of those receiving matches as a result of QSLPs.
• Other than for qualification testing, the student loan repayments are not treated as contributions to the plan.
• The IRS and Treasury Department are authorized to issue regulations that permit the QSLP matches to be made less frequently than regular matches, but not less frequently than annually. It is likely that the regulation will permit these QSLP matches to be made once a year for administrative convenience.
• The IRS and Treasury are also authorized to issue model plan amendments for QSLP matches.

If you have any questions about SECURE 2.0, please contact a member of the Schneider Downs Retirement Solutions team at [email protected].

This article is part of a series highlighting the impact of the SECURE 2.0 on retirement plan sponsors, participants and retirees. You can view our full catalog of SECURE 2.0 articles here or download our comprehensive SECURE 2.0 eBook here.

About SECURE 2.0

SECURE 2.0 was signed into law by President Biden on Dec. 29, 2022, as part of a $1.7 trillion omnibus spending bill.

This massive piece of legislation builds on the foundation that was laid by the 2019 Setting Every Community Up for Retirement Enhancement (SECURE) Act to further improve upon the success of the private employer-based retirement system by making it easier for businesses to offer retirement plans and for individuals to save for retirement.

The full text of SECURE 2.0, including provisions that affect pension and cash balance plans, may be found on pages 2,046-2,404 of the omnibus Consolidated Appropriations Act of 2023.

About Schneider Downs Retirement Solutions

Schneider Downs Retirement Solutions has experience in all facets of qualified and non-qualified plan delivery, which allows us to be flexible to the needs and direction of our clients. Our specialized team of advisers and consultants provide objective advice and expertise to help plan sponsors govern their retirement plans appropriately, mitigate risk, improve participant outcomes and support efficient and compliant plan operations. 

Schneider Downs Wealth Management Advisors, LP (SDWMA) is a registered investment adviser with the U.S. Securities and Exchange Commission (SEC). SDWMA provides fee-based investment management services and financial planning services, along with fee-based retirement advisory and consulting services. Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice. Registration with the SEC does not imply any level of skill or training.