The Retirement Parity for Student Loans Act (yet unnumbered), introduced by Senators Ron Wyden (D-OR) and Ben Cardin (D-MD), would allow employers to make contributions to 401(k), 403(b), and SIMPLE IRA plans in amounts having a matching relationship to an employee’s student loan debt repayments.
The legislation follows and may in part be a consequence of an August 2018 IRS private letter ruling (PLR) that addressed an employer’s request to make certain retirement plan contributions based on employees’ student loan debt repayments. While some in the industry were confused as to how such contributions would be treated for retirement plan purposes, the PLR’s facts and circumstances made clear that because such contributions were not matched to employee retirement contributions, they were not matching contributions in the traditional retirement plan sense. Such contributions, according to the PLR, could be made to the retirement accounts of qualifying employees as employer contributions of another type (e.g., profit sharing contributions) if plan design permitted, and otherwise-required nondiscrimination testing for the plan could be satisfied.
Senators Wyden’s and Cardin’s bill is intended to make this option broadly available to employers whose employees may be repaying student loan debt. Under the Retirement Parity for Student Loans Act, 401(k), 403(b), and SIMPLE IRA plans—all of which permit salary deferrals by participating employees—could allow employer contributions based on employees’ student loan repayments without special plan design conditions or special IRS approval. While such amounts would not actually match an employee’s deferrals into the 401(k), 403(b), or SIMPLE IRA plan, such employer-paid amounts could be contributed to such plans using their regular matching contribution formula.
Following are some of the bill’s key provisions.
- Only employees’ higher education loan repayments (not loans for private secondary or elementary expenses) would qualify for such employer contributions.
- Employer contributions matched to employee student loan debt repayments could not exceed the annual deferral limit appropriate to the employer’s plan (e.g., 401(k) vs. SIMPLE IRA plan deferral limit)—including catch-up contributions, reduced by such employee’s elective deferrals into the retirement plan; all amounts together must not exceed the employee’s compensation.
- Only employees eligible to defer into the employer’s retirement plan may receive student loan matching contributions.
- All employees who are eligible to receive retirement plan matching contributions must be eligible to receive student loan matching contributions.
- For purposes of satisfying nondiscrimination requirements in providing retirement plan benefits, rights, and features, those who have no student loan debt—and, thus, would not receive student loan matching contributions—would not be considered as having been denied a benefit, right, or feature.
- The Secretary of the Treasury would be directed to issue regulations governing such arrangements.
- As proposed, the legislation would be effective for 2020 and later years (“plan year” was not specified).
Little time remains in the 2018 session of the 115th Congress. But it is reasonable to expect that—if not acted upon in this session—this bill could be reintroduced in the 116th Congress that will convene in January 2019.