Additional Tools for Employers to Encourage Retirement Savings

Matching Contributions on Student Debt Payments

One of the most eagerly anticipated provisions of the “SECURE 2.0” legislation is the ability for employers to “match” within a defined contribution savings plan employees’ payments of student debt.   This provision is just one of the many changes in SECURE 2.0 aimed at enhancing and encouraging retirement savings opportunities for Americans.

In 2018, the IRS issued a Private Letter Ruling (PLR) to Abbott Laboratories approving a proposed amendment to its 401(k) plan to allow a matching contribution based on student debt repayments rather than employee deferrals to the plan.  While binding only on the employer receiving it, the favorable ruling piqued interest in other employers looking for ways to recruit, retain and encourage retirement savings for an employee population that may not have otherwise deferred to the plan due to student debt obligations.  Over the past few years, that interest has grown for many employers looking at creative benefits solutions, but a clear, compliant, and universally available path forward was lacking until now.

Under the new provisions of Internal Revenue Code Section 401(m)(4), any match must be based on student debt repayments for higher education expenses.  Eligibility, match rate, and vesting also must be the same as that for the match on elective deferrals.  The employee must annually certify that the loan payments have been made.  Employers may rely on this self-certification. 

From an administrative perspective, it is significant to note that the statute anticipates possible issues for nondiscrimination testing of elective contributions.  A plan can test separately those employees who receive matching contributions on student loan repayments from those who receive matching contributions on elective deferrals.  The amount of loan repayments made by the employee count towards the annual limit on elective deferrals under Code Section 402(g) but not as a contribution for the limit on annual additions under Code Section 415(c).  These provisions of the Act have laid the framework to make the inclusion of such a provision less administratively burdensome.

This is an optional provision that plan sponsors can implement in 401(k), 403(b), Governmental 457(b), and SIMPLE IRA plans for plan years beginning on and after January 1, 2024.  The IRS will issue implementing regulations and a model plan amendment for those plans wishing to adopt.

But Wait, There’s More!  Financial Incentives

In the same spirit of encouraging participation in defined contribution savings plans, SECURE 2.0 also allows employers to provide limited financial incentives to encourage participation in a 401(k) or 403(b) plan.  These incentives must be “de minimis,” although the statute does not define the threshold.  This likely means modest-value gift cards and other small incentives to encourage employees to participate, but notably, incentives may not be paid for with plan assets.  This tool is also optional and effective immediately, with no amendment to the plan required.

If you have any questions about these new plan design opportunities or SECURE 2.0 generally, please contact a Jackson Lewis employee benefits team member or the Jackson Lewis attorney with whom you regularly work.

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Photo of Joy M. Napier-Joyce Joy M. Napier-Joyce

Joy M. Napier-Joyce is a principal in the Baltimore, Maryland, office of Jackson Lewis P.C.

Joy counsels clients in a broad range of benefit matters, including general compliance and administration of qualified retirement plans under ERISA and the Internal Revenue Code. She also…

Joy M. Napier-Joyce is a principal in the Baltimore, Maryland, office of Jackson Lewis P.C.

Joy counsels clients in a broad range of benefit matters, including general compliance and administration of qualified retirement plans under ERISA and the Internal Revenue Code. She also assists clients with welfare plan issues involving cafeteria plans, health plans, flexible spending accounts, group insurance products, COBRA and HIPAA. Joy has a particular focus on assisting employers with the various compliance requirements associated with federal health care reform and has been a frequent speaker on the topic. Her practice also includes advice on non-qualified deferred compensation arrangements and other executive compensation matters, including issues related to compliance with Section 409A of the Internal Revenue Code.

As part of her practice, Joy frequently assists clients with a variety of benefits issues arising in corporate mergers and acquisitions and restructurings of all forms. This includes analyzing benefits risks for buyers, handling plan corrections and terminations, strategizing and implementing benefits arrangements post-closing and advising on controlled group considerations.

Joy represents clients in dealings with the Internal Revenue Service and the Department of Labor, including EPCRS applications, private letter rulings, determination letter applications and plan audits. She negotiates with outside benefits providers, including prototype plan sponsors, third party administrators, insurers, actuaries and auditors. She also counsels both public and private clients on a wide array of tax and securities law issues in relation to equity-based arrangements.