Lowell J. Walters of Carlton Fields Jorden, Burt.
With U.S. student loan debt totaling $1.5 trillion, employers are seeking ways to ease the burden of repayment for their employees and prospective employees. These have included signing bonuses and direct repayment of outstanding loans. Now, employers appear able to make matching-type contributions to retirement plans based on student loan repayments instead of on salary deferrals alone. On Aug. 17, the IRS publicly released a private letter ruling, allowing an employer to make a matching contribution to its 401(k) plan based on student loan repayments.
Background
In general, matching contributions allow an employer to make a contribution to its retirement plan if (and only if) the employee voluntarily chooses to salary defer into that plan. Employees who defer less than the amount necessary to receive the maximum match are often warned that they are losing out on potential returns and income. Yet responsible employees with student loans must honor their repayment requirements before deferring anything to their company’s retirement plan.
