Employer-Provided Student Loan Assistance Options Take Several Forms

The vast student loan debt of Americans who have attended post-secondary educational institutions has received much publicity, prompting lawmakers and employers to seek options to aid those who face such debt. Proposed approaches have included both legislation and options within current employee benefit structures, including retirement plans.

 

Employer Participation in Repayment Act of 2019
Senators John Thune (R-SD) and Mark Warner (D-VA) are chief sponsors of the Employer Participation in Repayment Act of 2019 (S. 460), which was introduced the in February 2019. This bill would expand the definition of tax-exempt employer-provided educational assistance to include “qualified student loan repayment amounts” contributed by the employer of up to $5,250 per year. This statutory change would allow such employer payments without their being treated as employee benefits taxable to the receiving employee.

Importantly, the benefit proposed in S. 460 is not a contribution to a retirement plan or other tax-advantaged savings account. However, this employer payment could ease financial pressure on an employee, perhaps enabling her to more fully participate in a retirement savings arrangement.

 

Retirement Parity for Student Loans Act
The Retirement Parity for Student Loans Act was introduced in December 2018 by Senators Ron Wyden (D-OR) and Ben Cardin (D-MD), and could be re-introduced in 2019. It would allow an employer to make a matching contribution to a 401(k), 403(b), or SIMPLE IRA plan based on an employee’s post-secondary student loan payment that is paid to a lender. Under current law, an employer-made matching contribution to one of these retirement plans can only be based on an employee’s deferral of compensation into that plan.

 

PLR on Plan Contributions for Those Making Student Loan Payments
In 2018, the IRS issued a private letter ruling (PLR) 201833012 addressing whether an individually designed 401(k) plan could allocate employer nonelective (e.g., profit sharing) contributions using a formula based on employee student loan repayments to a lender, rather than employee salary deferrals.

While loosely called “matching” contributions in some media analyses, such contributions do not meet the retirement plan definition of matching contribution if not based on employee salary deferrals. Instead, such contributions would more accurately be termed employer nonelective contributions.

Not every employer situation, nor every plan document, would lend itself to targeting such employer contributions to employees making student loan payments. Furthermore, a specific PLR can only be relied upon by the applying entity—in this case the retirement plan sponsor.