SECURE 2.0 and the Student Debt Solution for Retirement Plans

On December 29, 2022, President Biden signed into law SECURE 2.0, an Act which implicates a variety of different legal fields, none more significantly than ERISA law.It would take hundreds of pages to describe in detail all of the changes SECURE 2.0 implements into the law regarding both retirement plans and health plans. This post focuses on a simple, but important, change in the law that allows talented employees with student loan debt to be compensated for their work through employer matching contributions to a retirement plan.

Some members of the workforce are faced with the nearly impossible choice of making monthly student loan payments to pay off large amounts of student debt and contributing money to a retirement account courtesy of their employer.Section 110 of SECURE 2.0 now allows for employers to offer an alternative solution to those employees with significant student loan debt who are faced with that choice.Beginning January 1, 2024, an employer, if they so choose, will be allowed to make a matching contribution to a 401(k) plan or other individual retirement account (including a 403(b) plan and a 457(b) plan), even if the employee does not make a contribution, so long as that employee is instead making a “qualified student loan payment,” as defined by SECURE 2.0.

A “qualified student loan payment” is defined as any indebtedness incurred by the employee solely to pay qualified higher education expenses of the employee.Whether or not an employee is entitled to this matching contribution will depend on the retirement plan the employer offers. While it will always be the employer’s choice to offer the benefit to its employees, offering this kind of matching contribution could be used as a great marketing tool for companies looking to attract young talent to be able to say that they are willing and able to help their employees reduce their debt while also enabling them to plan for retirement.

Please feel free to contact our Employee Benefits group at Barrett McNagny with any questions about implementation of this matching contribution into your company’s 401(k) or retirement plan. We are always happy to help.

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