Legislation Paves the Way for Matching of Student Loan Repayments

In the waning days of 2018, new legislation was introduced in the U.S. Senate that would allow employers to make matching contributions to the retirement plan accounts of employees who are making student loan payments, treating the student loan payments as if they were salary reduction contributions. The proposed legislation is titled Retirement Parity for Student Loans Act and is sponsored by ranking Senate Finance Committee member Ron Wyden (D-Oregon). It comes on the heels of the IRS’s August 2018 private letter ruling that opened the door for employers to offer a student loan benefit for their employees.

Senator Wyden’s bill would be effective for plan years beginning after 2019. It also contains provisions that satisfy nondiscrimination testing rules and that preserve a plan’s safe harbor status.

Important details of the bill that plan sponsors should be aware of include:

• The proposed benefit would be voluntary and would need to be elected by the plan sponsor.
  
  
• If elected, the benefit would have to be made available to all employees who are eligible to make salary deferrals and receive employer matching contributions.
  
  
• The matching contribution on loan repayments could be made only on student loan debt associated with higher education.
  
  
• The rate of the employer match on salary deferrals and student loan repayments would be equal.
  
  
• Matching contributions could be made only to 401(k), 403(b), and SIMPLE IRA retirement plans.
  

If passed, the bill would serve a growing number of working Americans who are saddled with student loan debt and allow them to save for retirement while fulfilling their student debt payment obligations. As with any plan design consideration, however, plan sponsors would have to consult with ERISA counsel, a third-party administrator, or their retirement plan advisor to determine the feasibility of implementing any employee benefit program.