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September 26, 2024

Qualified Student Loan Payments (QSLP)

New SECURE 2.0 Act Perk: Turn Student Loan Payments into Retirement Savings

Employees with student loans generally cannot afford to make salary deferrals or contributions to their company 401(k) retirement plan. These loans create a lost opportunity to save for their future. When a company offers employer matching contributions, the employee loses out even more because no 401(k) deferrals mean they aren't eligible for the employer's matching contributions either.

But now, thanks to the SECURE 2.0 Act, there's a new opportunity for employees who are burdened with student loans. Starting with plan years beginning in 2024, employers can choose to make matching contributions to their retirement plan on behalf of employees who are making student loan payments, treating those payments as if they were salary deferrals.

This is a groundbreaking shift that could help bridge the gap for employees who are trying to juggle both retirement savings and student loan repayment. In fact, the IRS recently issued further guidance, effective for plan years beginning on or after January 1, 2025, about how this will work. Below we’ve broken down the key points into a Q&A format to make it easier to understand.

Under this law, eligible employees can certify to their employer that they are making Qualified Student Loan Payments (QSLPs). These payments will then be matched in their 401(k) plan just like regular salary deferrals. Employers who want to provide this benefit can amend their company 401(k), 403(b), SIMPLE IRA, or governmental 457(b) plans to include this matching provision for student loans.

If you are an employer or plan sponsor considering this opportunity, Benefit Equity Inc. (BEI) is here to guide you through the process. While the benefits are clear, the administrative complexities cannot be overlooked, and that's where we step in to help. As with many things in retirement planning, the devil is in the details.

Important Timing Considerations

It’s important to note that QSLP matches must be based on student loan payments made during the same plan year, and employers will need to set up reasonable procedures to ensure proper tracking and compliance. This could include deadlines for QSLP match claims, such as a three-month window after the end of the plan year. Setting up these processes is crucial to ensure that both the employer and employees comply with IRS rules.

Why QSLP Is a Game Changer

The ability to match student loan payments opens up a world of possibilities for both employers and employees. For employees, this means they no longer have to choose between paying down their student loans and saving for retirement. They can do both. This also allows employers to better compete in the talent market, offering a benefit that helps their workforce achieve long-term financial security while managing their debt obligations. It's a win-win.

According to recent statistics, about 44 million Americans collectively owe more than $1.7 trillion in student loan debt, with many unable to contribute meaningfully to retirement plans because of this burden. By offering a QSLP match, employers can make a huge impact on the financial future of their employees—especially for those in industries where higher education often leads to higher levels of debt (e.g., medical professionals, lawyers, etc.).

Plan Amendment Considerations

Amending a retirement plan to include QSLP matching is not a small task. Employers must follow specific IRS guidelines to ensure compliance (28-page Q&A), and this often means updating plan documents, participant communications, and operational procedures. BEI is ready to assist with navigating these changes, ensuring that the transition is as smooth and efficient as possible. Whether you’re operating a 401(k), 403(b), SIMPLE IRA, or government 457(b) plan, the process is highly customizable, and our consultants are here to tailor a solution that fits your organization.

Maximum Deferral Limits

Employers must ensure that QSLP matches comply with the maximum allowable deferral limits set for each plan year. These limits are designed to ensure that contributions are consistent with IRS guidelines and help prevent over-contributions.

How Employers Benefit from Offering QSLP Matching

Employers can benefit as much as employees. By offering QSLP matching, employers position themselves as forward-thinking and compassionate, attracting talent in a competitive job market. Employees who feel supported in tackling both student loans and retirement savings are likely to be more loyal and engaged, reducing turnover and improving productivity. For companies looking to enhance their employee benefits package, this is an easy win.

Additionally, companies in industries such as healthcare, education, and law—where student loans tend to be substantial—will find that offering QSLP matching is a particularly attractive benefit. Offering this kind of financial support sets companies apart from competitors, fostering goodwill and loyalty among employees.

Challenges of Administering QSLP

As beneficial as QSLP matching is, administering it is not without its challenges. Employees must certify that they are making Qualified Student Loan Payments, and companies must ensure those certifications are legitimate and meet IRS standards. From a plan administration perspective, tracking these certifications and ensuring that matching contributions are properly applied can add complexity to your HR and payroll systems.

Certification Process

For QSLP matches to be applied, employees must certify that their payments meet IRS requirements. This certification must include specific information such as payment amounts, dates, and confirmation that the payments were made by the employee. In most cases, this certification must be updated annually, although some loans may only require a one-time certification.

However, these challenges can be mitigated with the right third-party administrator (TPA) on your side. Benefit Equity Inc. specializes in navigating these intricate details so you can focus on running your business. We help design procedures to ensure compliance with IRS guidelines and streamline the process for both employers and employees.

Administrative Flexibility

Employers have flexibility in how they administer QSLP matching. While employees must certify their student loan payments, employers can choose whether or not to require additional verification of those certifications. This flexibility allows employers to set up procedures that best fit their organization’s operational needs.

Looking Ahead

The SECURE 2.0 Act represents a major shift in how companies can support their employees' financial wellness. It recognizes the reality that student loan debt is a significant barrier to retirement savings and provides a solution that benefits both parties. As the 2025 deadline approaches, now is the time to start planning for this change.

Contribution Frequency

Employers are not required to match QSLP contributions on a rolling basis. Contributions may be made annually, providing flexibility in how employers choose to manage the matching process.

At Benefit Equity Inc., we are excited about the possibilities that QSLP matching brings. We encourage employers to take the first step by reaching out to our consultants to explore how this new provision can be incorporated into your retirement plan.

Remember, this isn’t just about compliance; it’s about creating a retirement plan that works for your employees today and sets them up for a more secure tomorrow. Contact us today to discuss how we can help.

Contact your representative at Benefit Equity Inc. to learn more about implementing QSLP matching in your company’s retirement plan. Learn More.

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