IRS releases new guidance for student loan payment matching under Secure Act 2.0

Earlier this month, the IRS released a new notice (Notice 2024-63) to help provide interim guidance to companies that want to start making matching retirement plan contributions against employees’ student loan payments. 

While more guidance and regulations are still to come, the IRS said that plan sponsors may rely on this notice for the time being as they plan out how to augment any existing retirement plan with student loan payment matching.

The notice walked through several examples to help clarify questions around contribution eligibility rules, certification requirements, reasonable matching procedures, and special nondiscrimination testing. 

Our team at Highway has read the IRS notice and here are some of the biggest new takeaways: 

1. A qualified student loan payment (QSLP) includes any payment towards qualified education loan “incurred” by the employee to pay for a qualified higher education expense for the employee OR their spouse or dependent.
   
   
2. QSLP matches are all or nothing. If plans elect to include a QSLP match, they may not include rules that limit QSLP matches to only a subset of eligible employees.
   
   
3. Employees can certify their QSLP claims in a variety of ways but are not necessarily required to submit any documentation.
   
   
4. If an employee certified incorrect QSLP information, matches don’t necessarily need to be corrected but, if a QSLP match is corrected, all similar QSLP matches need to be corrected.
   
   
5. The guidance in the new notice applies to plan years beginning on or after Jan 1, 2025. Plans adopting a QSLP match in 2024 can rely on previous guidance to administer the match.
   
   
6. More regulation will probably be published in the future.
   
   

Takeaway #1: A QSLP includes payments to any qualified education loan incurred by the employee to pay for qualified higher education expenses for the employee OR THEIR SPOUSE OR DEPENDENTS.   

The new IRS notice officially defined a qualified student loan payment (QSLP) as any payment made by the employee to a qualified education loan incurred by the employee to pay for qualified higher education expenses of the employee, their spouse, or their dependent.  

This definition expands on the previous text of Secure Act 2.0 Section 110, which originally said that a QSLP was broadly defined as any repayment of qualified education loans taken out to pay for the employee’s educational expenses. With this new guidance, employers could conceivably match payments made by the employee to Parent PLUS loans!

What does “incurred” mean? The employee must have a legal obligation to make payments on the loan and be the one who is making the payments. For example, they are a cosigner on a qualified education loan for their dependent or spouse. Under this definition, a loan guarantor doesn’t qualify as a QSLP because they’re not typically required to make payments unless the primary borrower defaults.

Takeaway #2: QSLP matches are all or nothing.

‍According to the new notice, If a plan elects to include a QSLP match, it must offer the QSLP match to all employees who are also eligible to receive the QSLP match. Plans may not include rules that limit QSLP matches to only a subset of eligible employees (e.g. Plan sponsors cannot choose to restrict matches to payments made to the employee’s loans, to certain types of loans, for certain degree programs, etc).

That means eligibility rules around QSLP matches are only customizable insofar as the rules that establish eligibility for a traditional match are customizable.

As we know from previous guidance, all employees who are eligible to receive a traditional match must also be eligible to receive a QSLP match (and vice versa). This “uniform treatment” requirement can mean that adding a QSLP match is “all-or-nothing” in a sense. If added, everyone who is eligible to receive a QSLP match will be eligible to receive a match. Employers who want more flexibility can either opt not to offer a QSLP match or look at other targeted solutions like employer student loan repayment benefits.

Takeaway #3: Employees can certify their QSLP claims in a variety of ways but are not necessarily required to submit any documentation.

For a student loan payment (or set of payments) to be considered a QSLP, employees must complete 5 certification requirements. Employees must certify: 

1. How much was paid during the plan year  
2. When the payment(s) were made (individual dates)
3. That the payment was made by them, the employee 
4. That the loan(s) being repaid are qualified education loans
5. That the loan was “incurred” by the employee
   

According to the notice, there are several acceptable ways for employees to certify their QSLP claims, ranging from active and passive verification by the employee to third-party verification.

Let’s separate the certification requirement into two parts: First, certifying the employee’s loan (#4-5) and then, certifying individual payments (#1-3). 

Certifying the employee’s loans 

To certify that the loan(s) being repaid are qualified education loans that were incurred by them, the employee must actively provide information on their loan to their employer. They may do this by providing information to their employer or by registering their loan with their employer (directly or via a third-party service provider).

Certifying individual payments 

Employees can affirmatively or passively certify their individual payments, or Plan administrators can certify employee’s payments through independent verification according to the IRS. Additionally, plans can require employees to certify each individual payment or can allow employees to submit one annual certification for all loan payments.

Employees can affirmatively certify their QSLPs by providing information about their payments (amount, date, and that they made the payment) to their employer, or they can passively certify their payments by being given a reasonable amount of time to review and correct any payment data provided to the employer by a party other than the employee (e.g. directly from the loan servicer or via a third-party provider). If the employee doesn’t correct the information in the period provided, employers can treat the inaction as certification of the payment data.  

Plans can independently verify employee payments via any method of certification that allows a plan to validate the dates and amounts of payments made by the employee within the plan year. Qualified loan payments made through payroll deductions would be considered independently verified. 

Regardless of certification method, employees are not required to verify their payments and loans with documentation, unless reasonably required by the plan sponsor. 

Takeaway #4: If an employee certified incorrect QSLP information, matches don’t necessarily need to be corrected but, if a QSLP match is corrected, all similar QSLP matches need to be corrected. 

So it turns out that if plan sponsors find out that an employee’s certification of their QSLP was wrong, employers are not required to correct the match payment (in either the case of over or underpayment). If an employer does decide to correct the QSLP match, they will be required to correct all QSLP matches that were made under similar circumstances.

BUT, please note that this does not apply to errors that result from incorrectly administering a QSLP match, like failing to fully certify employee payments for example.

Takeaway #5: The guidance in the new notice only applies to plan years beginning on or after Jan 1, 2025.

The IRS notice says “this notice applies for plan years beginning after December 31, 2024. For plan years beginning before January 1, 2025, a plan sponsor may rely on a good faith, reasonable interpretation of section 110 of the SECURE 2.0 Act. The guidance in this notice is an example of a good faith, reasonable interpretation of section 110 of the SECURE 2.0 Act.”

If any plan sponsors who adopted (or are adopting) a QSLP match in 2024 are currently handling aspects of the QSLP match slightly differently than specified in this notice, that may be fine as long as adheres to Section 110 of SECURE 2.0 and any previous guidance given. Plan sponsors will want to make sure to make any necessary changes to their QSLP match for 2025. 

Takeaway #6: More guidance will probably be published in the future

The IRS themselves said they "anticipate issuing proposed regulations with respect to section 110 of the SECURE 2.0 Act” so while this notice provides reasonable guidance for plans offering a QSLP match in 2025, be on the lookout for more regulation and guidance in the future.
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If you’re an employer looking to add benefits that help employees with student debt to your total compensation strategy, our team at Highway Benefits can help! Schedule a call with us today to learn more about promoting employees’ financial fitness with a QSLP match or tax-free employer student loan repayment benefit.  

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Disclaimer: This article is purely information and is not intended as financial or legal advice. For more in-depth questions on how to interpret US laws or the IRS Tax Code, we recommend you speak to a specialized Tax Attorney.