ERISA Industry Committee Seeks Additional IRS Guidance on Student Loan Matching

Following guidance released this summer by the IRS about SECURE 2.0’s student loan matching provision, the advocacy organization still has unanswered questions.

The ERISA Industry Committee on Friday asked the IRS for additional guidance on how retirement plan sponsors can satisfy non-discrimination testing and other specific “unanswered questions” related in August to help plan sponsors implement the student loan match program now permitted under the SECURE 2.0 Act of 2022.

ERIC submitted a requesting additional technical guidance from the IRS to further help defined contribution plan sponsors provide employer matching contributions to retirement plans, based on a participant’s qualified student loan payments. ERIC referenced “several unanswered questions” about how the Department of the Treasury and the IRS would interpret Section 110 of SECURE 2.0.

The comment period on the August IRS notice, which applies to plan years beginning after December 31, 2024, ends Friday.

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First, ERIC urged the IRS and Treasury to publish model amendments—either as a follow-on notice or as a proposed regulation—to provide specific language that plans should include about satisfying non-discrimination testing. ERIC asked the IRS and Treasury to also provide model certification language that plan sponsors can use for employees to certify their qualified student loan payments.

In particular, ERIC asked that forthcoming regulations confirm that a plan sponsor has the flexibility to use either the actual deferral percentage test described in the notice each year or an alternative method, if needed, during plan year testing.

Certification Requirements

In addition, ERIC requested additional guidance on certification requirements that would qualify student loan borrowers to receive a matching contribution to their defined contribution plan accounts.

The August guidance from the IRS laid out five elements a plan must receive to certify the student loan payments:

  1. The amount of the loan payment;
  2. The date the loan payment was made;
  3. That the payment was made by the employee;
  4. That the loan being repaid is a qualified education loan and was used to pay for qualified higher education expenses of the employee, the employee’s spouse or the employee’s dependent; and
  5. The loan was incurred by the employee.

Any of the items can be satisfied though “affirmative certification” by the employee, according to the IRS. The first three items can also be satisfied by independent verification by the employer.

ERIC requested that any future regulations should confirm that plan sponsors and administrators are allowed to receive information about the amount and date of loan payments either directly from the student loan lender or from a third-party service provider.

Some benefit plans use third-party service providers to provide financial wellness tools to employees, including those with student loans, ERIC noted, and the tools can link student loan information with a retirement plan recordkeeper’s platform.

However, the Department of Education, in interpreting the 2020 Stop Student Debt Relief Scams Act with the goal of reducing fraud, has recently required student loan servicers to prevent access to their data. ERIC argued that this limit on data sharing has hindered third-party service providers from helping verify participant and loan data. An application process for trusted third parties may eventually be implemented but, as of now, has not been.

“This has the potential both to reduce implementation of the matching programs envisioned by Section 110 of the bipartisan SECURE 2.0 Act and to result in worse financial outcomes for plan participants,” ERIC argued in its letter. “It also adds to the burden for plan participants, as they will need to manually certify information that could be certified through the service-providers.”

ERIC urged the Treasury Department and the IRS to coordinate with the DOE and to alert the DOE of the potentially negative consequences of restricting access by third-party service providers.

Clarification on ‘Reasonable Procedures’

In the letter, ERIC also sought examples of “reasonable procedures” that a plan sponsor is permitted to adopt to implement a qualified student loan match feature. Under the IRS guidance, a plan may establish a student loan match claim deadline for a plan year or multiple deadlines for claim submissions, provided that the deadlines are reasonable, based on a facts-and-circumstances test. The IRS specifically noted that a deadline three months after the end of the plan year would be permitted.

As a result, ERIC stated in its letter that the IRS should confirm that a deadline within the first month after the plan year ends is also reasonable. The IRS should also specify the permissible timeframe for quarterly deadlines, as well as any deadlines for contributions made on behalf of terminated employees, ERIC argued.

Overall, ERIC urged that plans be given maximum flexibility in order to facilitate the operation of this plan benefit.

ERIC is a national advocacy organization that exclusively represents large employers that provide health, retirement, paid leave and other benefits to their employees.

Product and Service Launches

Diamond Hill launches Core Plus Bond Strategy; Rockefeller Asset Management expands active ETF lineup with small-mid-cap ETF, RSMC; PensionPro, Dynamis provide real-time data access to TPAs; and more.

Diamond Hill Launches Core Plus Bond Strategy 

Diamond Hill Capital Management Inc., a boutique investment management firm, announced the launch of the Diamond Hill Core Plus Bond Strategy. The strategy will leverage Diamond Hill’s experience in securitized assets while adding expertise in below-investment-grade-credit investing.  

“The Core Plus Bond Strategy reflects Diamond Hill’s continued commitment to providing investors with solutions matching their needs with our capabilities,” Diamond Hill’s CEO, Heather Brilliant, said in a statement. “This strategy will further enhance our line-up of differentiated fixed-income offerings.” 

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The Core Plus Bond Strategy will be managed by Arthur Cheng, Mark Jackson and Henry Song. According to Diamond Hill, the focus on securitized products allows the team to capitalize on an area underrepresented in common fixed-income benchmarks and therefore overlooked by most investors. The addition of high-yield assets creates a differentiated risk profile from Diamond Hill’s existing core bond strategy and increases opportunities for additional return. 

“Our team has long had a unique focus on securitized assets that has contributed to our success for clients,” said Song in a statement. “We are pleased that adding expertise in below-investment-grade investing has enabled the launch of this strategy, expanding our ability to deliver great outcomes for a broader array of clients.” 

Rockefeller Asset Management Expands Active ETF Lineup With Small-Mid-Cap ETF 

Rockefeller Asset Management, the asset management arm of Rockefeller Capital Management, announced the launch of RSMC, an actively managed Rockefeller small-to-mid-cap exchange-traded fund.  

This marks the firm’s fourth actively managed ETF launched this year, following the firm’s expansion into opportunistic municipals with three high-yield municipal bond ETFs in August. 

RSMC is Rockefeller’s first actively managed small-to-mid-cap ETF and, at the time of launch, is among the largest actively managed ETFs of its type, with approximately $740 million in assets. The strategy seeks to invest primarily in U.S. small- and mid-cap companies with durable business models and enduring growth, with the goal of delivering attractive risk-adjusted returns. 

The fund is managed by Jason Kotik, managing director and portfolio manager, and Tim Skiendzielewski, senior vice president and portfolio manager. Kotik and Skiendzielewski bring more than 40 years of combined experience in small-cap investing and, prior to joining Rockefeller, worked together for more than a decade managing several U.S. small-cap strategies at the investment company Abrdn plc. 

PensionPro, Dynamis Provide Real-time Data Access to TPAs 

AmericanTCS’s PensionPro, a provider of workflow automation software for third-party administrators, announced it is partnering with Dynamis Inc., a 7 Simple Machines product specializing in real-time data collection and processing for third-party administrators.  

An automated data flow between the PensionPro and Dynamis platforms will provide TPAs with comprehensive reporting on census, gross compensation, payroll and paycheck data from more than 200 human resource information providers.  

The integration will allow for more efficient year-end testing and will also offer PensionPro users access to real-time data throughout the year, assisting reporting on critical 3(16) data on a payroll-by-payroll basis. 

Dynamis also provides TPAs with three years of historical data and advanced data intelligence capabilities that can detect errors in their current census data, combined with a series of checks on payroll cadences and other potential payment issues. 

Stone Ridge and LifeX Announce New ETF 

Stone Ridge Holdings Group, a financial services firm with more than $30 billion in assets, unveiled the LifeX ETF franchise, designed to convert nest egg assets into predictable monthly distributions through a specified end year, with an option for inflation protection.  

Distributions consist of interest income and principal from U.S. government bonds. This tax-efficient and flexible approach provides investors with a reliable, turnkey withdrawal strategy designed to mitigate risks associated with market volatility and inflation. 

“This breakthrough product can have a powerful impact on the day-to-day lives of millions of Americans,” said Yan Zhao, Stone Ridge’s co-founder and president, said in a statement. “For retirees and those nearing retirement, living a longer, healthier life shouldn’t be a source of financial stress. Many Americans often find themselves massively underspending their life savings out of fear. We believe LifeX represents a fundamental shift in propelling Americans towards greater autonomy over their financial futures at a pivotal time for the U.S. retirement system.” 

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