On the Horizon – a Student Loan Repayment Benefit to Encourage Retirement Savings of Millennials

January 4, 2022

Many millennials are so burdened by student debt that they’re not contributing to their workplace retirement plans. It’s hard for Plan Sponsors to make a case for contributing to retirement when your employee is struggling to pay off student loans. But, help may be on the way. In 2018 a forward-looking Plan Sponsor appealed to the IRS to amend their 401(k) plan to include a student loan benefit program.

In response, the IRS, in a private letter ruling, approved this Plan Sponsor’s plan amendment to offer a student loan repayment benefit. The amendment allows the Plan Sponsor to make a matching contribution to an employee’s 401(k) retirement account based on their monthly student loan payments, up to a certain amount.

Under the IRS-approved program, employees with student loans who made a loan repayment or an elective deferral to the 401(k) plan of 2% or more of pay would receive an employer matching contribution of 5% of compensation.  This matching contribution would be exempt from testing for employees that did not defer 2% of more of pay to the plan.

Since a private letter ruling only affects the organization requesting the amendment, legislation to cover everyone is needed. Senators Ron Wyden, D-Oregon, and Ben Cardin, D-Maryland, introduced the Retirement Parity for Student Loans Act (S. 3771) on December 18, 2018. This legislation would allow all companies to make matching contributions to 401(k), 403(b), and SIMPLE retirement plans for employees who do not make retirement contributions, as long as they make qualifying student loan payments.

Centurion welcomes and supports this emerging change. Improving plan participation and helping employees struggling with student debt is truly better thinking for a better outcome.