SECURE 2.0 has been a significant area of focus for many Plan Sponsors. One provision that has received a significant amount of attention is provision 110, which allows for 401(k) matching contributions to be made based on student loan payments (Qualified Student Loan Payments or “QSLP” matches). Until recently, the guidance on how to implement this provision was unclear, which has been a roadblock to more widespread adoption. However, with the IRS’s recent release of Notice 2024-63, we now have a clearer picture of how this provision can be practically applied in plans.

At its core, Section 110 of SECURE 2.0 allows employers to make matching contributions to 401(k) plans based on an employee’s qualified student loan payments (QSLPs), starting for plan years after December 31, 2023. This provision is designed to assist employees who, due to student loan obligations, might not be able to contribute enough to their 401(k) plan to receive full matching contributions.

1. What qualifies as a QSLP: A QSLP is a payment made by an employee to repay a qualified education loan. A qualified education loan is an indebtedness incurred by the employee to repay the qualified higher education expenses on behalf of the employee, the employee’s spouse, or dependent on which that employee is the signer or cosigner (provided that the employee is a signer or cosigner on the loan).
2. Uniform Eligibility Requirements: QSLP matches must be available to all employees eligible for elective deferral matches and on the same plan terms as elective deferral matches. This means that a plan cannot offer QSLP matches only to certain subsets of employees (e.g., only those who attended specific schools or pursued certain degrees). It also means that the plan sponsor cannot impose a last day of employment requirement for QSLP matches if the same is not imposed on elective deferral matches. Importantly, the guidance allows for QSLP matches to be made at a different frequency than traditional 401(k) matches, as long as they are made at least annually
3. Certification Requirement: For a QSLP match to be made, the employee must certify at least annually that the payment was made towards a qualified education loan, detailing the amount, date, and that the payment was made by the employee. Certification may be made by the employee or by an independent verification by the plan sponsor.

The release of IRS Notice 2024-63 does provide a blueprint of how QSLP matches can be implemented. The IRS states that the Notice can be relied on until further guidance is issued in the form of proposed regulations.

For plan sponsors considering the adoption of QSLP matches, key considerations should include:

• Assessing Administrative Capacity: Implementing QSLP matches will require processes for collecting and verifying employee certifications. Sponsors will need to determine whether they have the internal capacity to manage these processes or if they will need to engage third-party administrators.
• Employee Communication: Clear communication will be essential to ensure that employees understand how to certify their QSLP payments and what documentation is required.

While the IRS guidance in Notice 2024-63 has addressed many of the uncertainties surrounding Section 110 of SECURE 2.0, there remains a need for plan sponsors to approach implementation thoughtfully.

With further respect to this, employers may also want to consider options outside of the 401(k) plan, such as IRC §127 Educational Assistance Programs. In addition to considering QSLP matches, employers might also want to explore the benefits of IRC §127 Educational Assistance Programs. These programs offer greater flexibility and can be more broadly appreciated by employees since they are not limited to student loan repayments. With the ability to cover current educational expenses like tuition and books, §127 programs can be an attractive benefit that enhances employee retention and satisfaction. However, employers should weigh the potential costs and administrative requirements against the benefits of offering such a program. Depending on the needs and demographics of their workforce, an IRC §127 Educational Assistance Program could complement or even serve as a more advantageous alternative to QSLP matches.