How Secure 2.0 Act Helps Workers With Student Loans

Americans today carry trillions of dollars’ worth of student loan debt. While student loans provide a powerful solution to allow ordinary Americans to access higher education, those loans can also stand in the way of a taxpayer’s ability to save for retirement during prime earning years.

Because student loans may prevent employees from contributing to employer-sponsored retirement plans, employees with student loans become less likely to receive the benefit of employer matching contributions.

Beginning in 2024, employers will have the option of treating employees’ qualified student loan payments as elective deferrals for purposes of an employer’s matching contribution program under the new Secure 2.0 Act. However, not all payments are eligible — so it’s important for employers to understand the details of what constitutes a qualified student loan payment.

The New Student Loan Matching Rules

Typically, employers make matching contributions to employer-sponsored retirement plans based on the participant’s elective deferrals to the plan. For example, an employer may offer a 50% matching contribution up to 5% of the employee’s salary. So, for every dollar the employee contributions, the employer contributes an additional 50 cents — up to the compensation limit. Historically, employees have only received this benefit if they have the funds to contribute to the account.

Beginning in 2024, employers will also be entitled to make matching contributions to an employer-sponsored retirement plan based on an employee’s qualified student loan payments — even if the employee does not directly contribute to the retirement plan.

Student loan repayments are treated as contributions to the plan only for purposes of qualification testing. Further, employers are permitted to either include these matching contributions with their general non-discrimination testing or test participants who receive these loan-based matching contributions as a separate group.

The provision applies to any type of employer-sponsored deferral-based retirement plan, including 401(k)s, 403(b)s, SIMPLE IRAs and governmental 457(b) plans. Under the new law, the employer must treat the qualified student loan payment match in the same manner as the employer’s deferral-based matching contribution.