Two bills have been introduced in the Senate that would allow employers to make matching contributions under 401(k), 403(b), governmental 457(b) and SIMPLE plans as if the participant’s student loan payments were salary reduction contributions. On May 13, Senator Ron Wyden (R-OR) reintroduced the Retirement Parity for Student Loans Act (Student Loan Act) and Senators Ben Cardin (D-MD) and Rob Portman (R-OH) reintroduced the Retirement Security & Savings Act. These bills seek to codify last year’s Internal Revenue Service private letter ruling (PLR) that permitted a 401(k) plan to make matching contributions tied to an employee’s student loan repayments.
The PLR allowed an employer to amend its 401(k) plan to add a new student loan repayment program. Under the terms of this program, if an employee enrolls in the program and makes a student loan repayment equal to a specified amount of his/her eligible compensation per pay period, the employer will make a non-elective contribution to the plan in an identical amount as the employer matching contribution.
The proposed legislation seeks to address a number of questions raised by the PLR and would give employers more flexibility to offer student loan repayment benefits under their retirement plans. Under the terms of the proposed legislation, the student loan program would be a voluntary benefit employers may offer employees under their retirement plans. Student loan repayments would be treated similar to elective deferrals eligible for matching contributions (rather than non-elective contributions in the PLR). Additionally, the proposed legislation would clarify nondiscrimination testing requirements which were not addressed in the PLR and would expand the plans eligible for this benefit to safe harbor 401(k) plans, 403(b) plan and SIMPLE plans.
The prospect for enactment of these bills is uncertain. Even if the bills do not pass Congress, an IRS official announced in May that the IRS is working on more formal guidance to clarify how a student loan repayment program can be offered by a qualified retirement plan. At some point in the future, employers may have a new recruiting tool to assist employees with their student loan debt.