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Benefits February 20, 2025
PLANSPONSOR Roadmap Series: Student Loan Matching and Educational Benefits
Employers have options to offer student loan benefits to employees and do not need to wait for further IRS guidance to start.
Reported by Remy Samuels
Art by David Plunkert
The SECURE 2.0 Act of 2022 created an opportunity for employers to help their workers pay off student loans while still saving for retirement, but implementing this optional provision in connection with a retirement plan will look different, depending on the organization’s needs.
The second PLANSPONSOR Roadmap livestream in the SECURE 2.0 series focused on student loan matching and educational benefits. The speakers discussed the options available to plan sponsors that want to make matching contributions to the retirement account of employees who make payments on their student loan debt. The panel also considered the impact implementing such programs has on recruitment and retention efforts.
The full webinar can be viewed here.
Employers’ Options for Student Loan Matching
Elizabeth Dold, managing partner in the Groom Law Group, spoke about the two options employers have to provide assistance with student loans: SECURE 2.0 Section 110 and Section 127 of the Internal Revenue Code.
Section 110 allows employers to treat qualified student loan payments the same way they would 401(k) deferrals, making those payments eligible for the same company match. QSLPs must be made by the employee to pay qualified higher education expenses for the employee, a spouse or a dependent; limited to the 402(g) limit; and meet certain certification requirements. These requirements include the amount of the loan, the date of the loan payment, who made the payment (it must be the employee); and the eligibility of the loan incurred by the employee.
Dold emphasized that everyone eligible to make deferrals must be eligible for this student loan match, and employers cannot pick and choose who is eligible.
Section 127 of the Internal Revenue Code was created by Congress in 1978 as a temporary, expiring tax benefit to allow employers to provide tax-free assistance to employees who are continuing to pursue their education while working. It allows employers to offer an education assistance program, which provides employees with up to $5,250 in benefits that are generally tax-deductible by the employer. This also differs from SECURE 2.0 Section 110 in that it is only for employee loans—not those of spouses and dependents. However, the provision expires at the end of this year. Dold said Congress is “working hard to get [the provision] extended.”
She noted that the IRS put out interim guidance on student loan matching payments under SECURE 2.0 in August 2024 and that while more guidance is still needed, employers should implement the benefit rather than waiting.
“We’re still waiting for regulations, we’re still waiting for a model plan amendment, but that shouldn’t stop anyone,” Dold said. “Model plan amendments aren’t due until next year, and I don’t anticipate any big questions or anything that we would need to wait on for the final proposed regulations.”
Dold said recordkeepers are starting to ramp up administration of this benefit and roll it out, but even without the help of a recordkeeper, participants are able to self-certify the student loan payments in order to receive a match.
Avangrid’s Program
Brian Williamson, director of benefits and retirement programs at Avangrid Inc., a large utility company based in Orange, Connecticut, spoke about his company’s student loan matching program, which was launched with Fidelity Investments in September 2023 and follows Section 127.
Williamson said there are currently about 800 participants in the program, and at least 1,000 have participated over the last two years. He said the company has saved about $4.5 million for employees between principal and interest since the program was launched.
Avangrid’s program also provides employees with an additional $3,000 per year on top of providing employees with the full retirement match. The cap on the program is $9,000 after three years.
While going with the Section 127 plan was more expensive for the company, Williamson said the company felt it served the best interests of their employees.
He explained that with the SECURE 2.0 plan, the company is using the same 401(k) match budget, so it does not come at an increased cost to the company. However, he said if an employee in the SECURE 2.0 plan is not contributing anything to the 401(k) plan but has received a 3% match on QSLPs, they are only saving 3% per year.
“If the average deferral to get the match is 6%, all those employees are missing out on [the full] 6% of savings per year, which compounds to huge savings differentials by the time they get to retirement,” Williamson said.
By comparison, he said Avangrid’s plan still encourages employees to keep making deferrals so that they receive the full company match. Before implementing the program, Williamson said his team sent out a survey to gauge interest in the program and received an overwhelming response. Employees also said they would increase their 401(k) deferral if they had the benefit.
“We want all employees to have the best retirement that we all envision,” Williamson said. “A lot of employees, especially younger employees, [are] not focused on retiring 30, 40 years from now. They’re more concerned about making payments toward their student loan debt. We saw how that was affecting retirement readiness … and we realized this is something we really needed to focus on.”
Administrative Ease
Administratively, Williamson said it is a fairly simple process for employees, as they log on, sign up and submit a current bill. Fidelity then verifies the status of their loan, and the company then receives a monthly invoice from Fidelity listing all the employees who are verified. After confirming the employees are all still at the company, Avangrid wires the money to Fidelity, which then pays the loans directly to the service providers.
Sean Kelly, a vice president and financial adviser at Heffernan Financial, said student loan benefits are a great tool for recruitment and retention if the company can implement them. Kelly agreed with Williamson that the Section 127 program is “very easy to operate” and several of his clients utilize it.
Kelly also mentioned that recent research from Candidly, a student loan benefit provider, found a 13.5% increase in first-time participation in student loan matching programs in 2024, a 58% reduction in likelihood of turnover and a 27% increase in employees maximizing the employer match.
“That increase in just the first year [with] these earlier adopters is showing that it’s working,” Kelly said. “There’s more activity now in January 2025 than there was in all of 2024 to implement a program like this.”
He said as recordkeepers continue to build out these programs for plan sponsors to offer, he expects student loan benefits will become a normal part of retirement plans.
