On August 19, 2024, the IRS issued Notice 2024-64 (“Notice”), which provides interim guidance for applicable retirement plans that elect to implement employer matching contributions for qualified student loan payments (“QSLPs”) made by participants. This option was made available as a part of the SECURE 2.0 Act of 2022 (“SECURE 2.0”). While retirement plans were permitted to add a QSLP match feature for plan years beginning after December 31, 2023, the Notice applies for plan years beginning after December 31, 2024. For plan years beginning before January 1, 2025, the Notice provides that plans may rely on a good faith reasonable interpretation of Section 110 of SECURE 2.0.
Overview of QSLP Matching Requirements
Generally, this provision allows an employer to make a contribution to a participant’s account that matches the participant’s qualified student loan payment. Prior to SECURE 2.0, employers could only match elective deferral payments made to that applicable plan. The Notice defines a QSLP as a payment: (1) made by an participant during a plan year in repayment of a qualified education loan incurred by the participant to pay qualified higher education expenses of the participant, their spouse, or their dependent; (2) that does not exceed, when aggregated with other payments for the year, any Code Section amount limitation for the plan year; and (3) that is certified for the plan year by the participant. Plans that may offer a QSLP match include: 401(k) plans, 403(b) plans, SIMPLE IRA plans and governmental 457(b) plans.
The Notice makes clear that a qualified education loan is “incurred” by the participant if he or she has a legal obligation to make a payment under the terms of the loan. Therefore, cosigners and guarantors of a qualified education loan, if the primary borrower defaults under the loan (but not before that), have incurred such legal obligations. Further, if offered, a plan must provide QSLP matches with respect to all qualified education loans (for example, it cannot exclude loans for certain types of degree programs or schools) and must allow all participants that participate in an elective deferral matching program to participate in this program. However, a plan may exclude non-collectively bargained participants from a QSLP match program even if the elective deferral program is offered to such participants.
The Notice also specifies that a plan may establish either a single deadline or multiple deadlines for submitting match claims for a plan year, as long as the deadline is reasonable. A factor in determining whether a deadline is reasonable is whether the deadline gives participants a reasonable opportunity to collect and provide the documentation required for claim submission. The Notice also says that plans may, but are not required to, make QSLP matches at a different frequency than elective deferral matches, but no less frequently than annually. This means that plans do not have to provide QSLP matches on a rolling basis even if that is what they do for the elective deferral match program.
Certification Requirements
The Notice clarifies that participants must certify to the plan or a third-party administrator the below information to qualify a payment as a QSLP:
- The amount of the loan payment;
- The date of the loan payment;
- That the payment was made by the participant;
- That the loan that is being repaid is a qualified education loan that was used to pay for qualified higher education expenses; and
- That the loan was incurred by the participant.
According to the Notice, plans have options for how to implement this certification requirement. For example, the plan can simply require a participant to annually self-certify all the above information by completion of a written or electronic attestation. Alternatively, the plan could require a participant to submit documentation, such as payment receipts, to verify items 1, 2 and 3 annually and register the loan once to establish items 4 and 5 (unless the terms of the loan change as part of refinance, in which case re-registration could be requested). However, any verification procedures adopted by the plan must be reasonably available to all participants. For example, if the process generally is to require the lender to transfer loan data to the plan but a particular loan vendor will not do it, the procedure must allow alternative ways for participants to verify items 1-3 above, such as by cancelled checks or loan statements.
The Notice also states that if a participant’s self-certification is determined to be incorrect, a plan is permitted, but not required, to correct a QSLP match that is based on such certification. However, a plan is required to correct a QSLP match in the event that an incorrect match is due to the plan’s operational failure in administering a QSLP matching contribution.
ADP Testing
Matching contributions made on behalf of QSLPs still must satisfy non-discrimination testing, just like employer matching contributions based on elective deferrals into a plan. When determining whether a plan passes the Actual Deferral Percentage test (“ADP test”), the plan can either apply a single ADP test for all participants or apply separate ADP tests for those who receive QSLP matching contributions and those who do not. If the plan chooses to apply separate ADP tests, it may use one of the two methods described in the Notice. Both methods test employees who receive QSLP matching contributions, regardless of whether they also make elective deferrals, separately from employees who do not receive QSLP matching contributions. However, under the first method, the elective deferrals of employees who receive QSLP matching contributions are included in the separate ADP test, while under the second method, such deferrals are included in the main ADP test.
Please contact Slevin & Hart for more information about how the Notice affects your plan.
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