ERISA Industry Committee Seeks Additional IRS Guidance on Student Loan Matching

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.

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.