Administration August 28, 2024

Educational Assistance Programs Can Be Used to Help Repay Student Loans

Employees whose employers offer educational assistance programs can use them to help pay student loan obligations until at least December 2025, according to the IRS.

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The IRS issued a reminder on Wednesday, telling employers that offer educational assistance programs that their employees can still use them to help pay student loan obligations through December 31, 2025.

Traditionally, educational assistance programs have been used to pay for books, equipment, supplies, fees, tuition and other educational expenses, but these programs can also be used to pay principal and interest on employees’ qualified education loans. Payments made directly to the lender, as well as those made to the employee, may qualify, according to the IRS.

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This option to use educational assistance programs to pay for workers’ student loans has only been available on payments made after March 27, 2020. The student loan provision is currently set to expire December 31, 2025.

The IRS noted that in most cases, educational benefits, including educational assistance programs, are excluded from federal income tax withholding, Social Security tax, Medicare tax and federal employment tax. By law, the tax-free benefits of an educational assistance program are limited to $5,250 per employee per year. Assistance provided greater than that level is normally taxable as wages.

For employers interested in offering an educational assistance program, the IRS stated that these programs must be laid out in writing as a company benefit and cannot discriminate in favor of highly compensated employees.

More information on fringe benefits, including educational assistance programs, can be found on the IRS website. Qualification details for students can be found here.

The IRS last week also offered interim guidance on student loan matching payments, as permitted under the SECURE 2.0 Act of 2022. The notice explained rules for employers with 401(k), 403(b) and governmental 457(b) plans to provide retirement plan matching contributions based on qualified student loan payments, rather than based only on elective contributions to retirement plans.

The IRS is taking public comments on the student loan matching payment notice, which applies to plan years beginning after December 31, 2024. The comment period runs for 60 days after the notice is published in the Federal Register.

The same day the IRS issued its reminder on student loan assistance, the Supreme Court refused to reinstate the student loan repayment plan of President Joe Biden’s administration, Saving on a Valuable Education. The Supreme Court turned down a request from the Biden administration to put the plan back in play after lower courts blocked it this summer. The plan offers lower monthly student loan payments and a faster path to loan cancellation for millions of loan borrowers. Currently, more than 8 million people are enrolled in the program, with debts already cleared for more than 400,000 borrowers. Ongoing litigation and a hold issued by the U.S. 8th Circuit Court of Appeals have stalled the SAVE program, as the Biden plan is known.

Benefits August 28, 2024

Prudential to Complete Industry’s 1st Multiemployer Pension Risk Transfer

The $221 million transaction will secure pension benefits for retirees and beneficiaries at Sound Retirement Trust, a multiemployer plan for grocery workers in Washington state.

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In what is thought to be an industry first, Sound Retirement Trust, a multiemployer pension plan based in Seattle, has selected the Prudential Insurance Co. of America to complete a pension risk transfer—the first PRT to involve a multiemployer plan.

The $221 million transaction will provide pension benefits for approximately 8,700 retirees and beneficiaries.

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Sound Retirement Trust is a joint labor-management board of trustees that provides retirement benefits to grocery workers of contributing employers across Washington.

Multiemployer pension plans are retirement programs jointly offered by contributing employers and labor unions and are often referred to as Taft-Hartley plans. The employers in these types of plans are usually in the same or related industries, and the plans are run by a board of trustees, with an equal number of employer and union trustees.

Under these plans, union workers can transfer from job to job with minimal disruption in retirement plan participation, as long as their employers have bargained to contribute to the same retirement plan, according to Prudential.

The Sound Retirement Trust was formed in 1965 under collective bargaining agreements between the Retail Clerks International Association, Local Union No. 1105, and Food Industry Inc. The fund reported having 155,238 participants, including 93,701 active participants, as well as $2.6 billion in assets for the 2022 plan year, according to data on its Form 5500.

“The decision to purchase a group annuity contract to cover 8,700 United Food and Commercial Workers retirees of the Sound Retirement Trust was determined over a year of careful due diligence and deliberation,” said Faye Guenther, union trustee and president of UFCW Local 3000, in a statement. “Prudential was selected because of its historic track record as one of the safest annuity providers to guarantee pension benefit payments in the United States.”

Agilis served as the annuity placement consultant to the board on the transaction, led by Michael Clark, the chief commercial officer at Agilis, and Joe Anzalone, head of its PRT business. Clark says unlike corporate PRT transactions that are primarily motivated by cost savings or as the result of a plan termination, this multiemployer plan transaction was motivated primarily by benefit security.

“By transferring the 8,700 retirees to Prudential, those retirees now have their benefits backed by one of the leading insurers in the PRT industry,” says Clark. “For the remaining participants in the multiemployer plan, they benefit from improved net cashflows going forward, which will continue to aid in the strong funded status position of the Sound Retirement Trust.”

Clark adds that many non-corporate pension plans have a large portion of retirees compared with the rest of their participant populations. He says when factoring in the present value of administrative costs—something not always captured in liability calculations—the gap between the total liability and the annuity purchase cost can narrow substantially.

Under the terms of the transaction agreement, Prudential will assume resume responsibility for paying retirement benefits to the retirees and beneficiaries, beginning September 1.

Prudential has also entered into large PRT deals this year with Verizon Communications Inc. and Shell USA Inc.

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