Retirement revolution: SECURE 2.0 student loan match

Higher education is supposed to help people move forward — not hold them back.

But for the majority of Americans, going to college means taking out student loans — and all too often, the burden of repaying those loans blocks borrowers from building financial security and stability for decades to come.

Herein lies the significance — and the power — of the student loan retirement match provisions contained in the SECURE Act 2.0.

A quarter of American workers who are eligible for, but not enrolled in their employer’s retirement plan say their student debt is the main reason why.¹   And even those who do participate are saving significantly less: 8 in 10 borrowers say their student loans force them to save less for retirement, and at age 30, the average borrower has half the retirement savings as their non-indebted peers.²

Delaying retirement savings sets off a domino effect of financial consequences — and not just because of the potential millions of dollars in compound interest borrowers lose when forced to prioritize loan repayment over plan contributions. Once college debt is repaid — a process that takes many upwards of twenty years³   — borrowers are torn between catching up on retirement savings and focusing on other personal and financial goals that were pushed to the side, such as homeownership and other investments, helping kids pay for school, and funding care for aging parents.

By empowering participants to address the burden of student debt while also saving for the future, SECURE 2.0 student loan match programs can democratize lifelong, holistic financial wellbeing and enable borrowers to reap the rewards of investing in their education.

401(k) student loan retirement match benefits can make a difference for every employee with student debt

When considering current national averages, we estimate that the SECURE Act 2.0 student loan match programs will generate:^7,8

• 8 million net new plan participants
• $15-$35 billion in net new annual plan sponsor contributions
• Significant increase in contributions from existing plan participants

Maximizing impact at scale

Miranda⁹   , age 25, just finished grad school and is starting her career. She plans to wait to start making contributions to her workplace retirement plan until she’s finished paying off her student debt, which will take ten years to complete. But because her employer only offers a traditional 401(k) match, waiting to start saving means that Miranda will miss out on hundreds of thousands of dollars in compound interest that could have been generated had she had access to a 401(k) student loan match benefit.

So, what exactly does the SECURE Act 2.0 student loan match provision entail? Here’s a closer look at Section 110, and select takeaways from the subsequent IRS guidance for operationalizing SECURE ACT 2.0 student loan retirement matching:

Overview

Employers are permitted, but not required, to match qualified student loan payments with contributions to an employee’s 401(k), 403(b), 457(b), or SIMPLE IRA plan. Contributions are treated with the same tax benefits as certain other employer contributions and elective deferrals, and must follow the same terms (including the match rate, eligibility rules, and annual limits) as the employer’s traditional retirement match.

Payment eligibility and certification

In order for a student loan payment to be considered a Qualified Student Loan Payment (QSLP), and therefore eligible to be matched with a retirement contribution, the payment must be made by the employee (during the given plan year) towards the repayment of a qualified education loan incurred by the employee to pay for qualified expenses related to the employee’s higher education, or the higher education of the employee’s spouse or dependent.

QSLPs must also be certified by providing the following information:

• (1) The amount of the payment
• (2) The date on which the payment was made
• (3) Confirmation that the payment was made by the employee
• (4) Confirmation that the payment was for a loan used to pay for qualified expenses related to the employee’s higher education, or the higher education of the employee’s spouse or dependent
• (5) Confirmation that the payment was for a qualified education loan incurred by the employee

There are three methods through which points (1), (2), and (3) can be verified:

• Affirmative certification, through which an employee actively confirms the eligibility of their payments. Plans are permitted, but not required, to verify employees’ self-certifications by collecting and reviewing supporting documentation.
• Independent verification, through which the employer is able to confirm the QSLP eligibility of an employee’s claim using independently available data. For example, an employer who offers a payroll deduction service for student loan payments may use payroll records to confirm the amount of the payments claimed.
• Passive certification, through which the plan or service provider notifies the employee of the payment data it has received; if the employee’s status as payor is not already collected in the payment data, the plan or service provider will also send the employee a statement communicating that the employer assumes that the employee is the payor. The employee is given a reasonable deadline by which they must provide corrections (if any) for the payment data and, if applicable, the employer’s assumption of payor status. If no corrections are provided by the employee, the payment is considered certified.

An employee must affirmatively certify points (4) and (5), which can be done by registering their loan with their employer, plan, or a third-party service provider acting on behalf of their employer or plan.

An employee is only required to register their loan to verify points (4) and (5) once, but if the employee refinances their previously registered student loan, wants to be eligible to receive matching contributions for payments towards another student loan, or their loan information changes (for example, if they are assigned a new account number by their loan servicer), they must complete registration again. Points (1), (2), and (3) must be provided on at least an annual basis to certify payments as eligible for matching, but the plan can opt to certify payments at more frequent intervals.

Plan design and administration

QSLPs can be matched with contributions to 401(k) plans, 403(b) plans, SIMPLE IRA plans, and governmental 457(b) plans. All employees eligible for elective deferral matches must be eligible for a plan sponsor’s SECURE 2.0 student loan match, and vice versa.

Plan sponsors cannot add additional eligibility criteria for defining QSLPs. For example, a sponsor cannot restrict their SECURE Act 2.0 student loan retirement match program to only apply to QSLPs made to pay for loans incurred to pay for expenses related to a certain type of degree or a specific school.

Provided they are reasonable and adhere to all IRS guidelines, plans or employers may establish their own procedures for administering their SECURE Act 2.0 student loan match programs, or adopt a third-party service provider’s administrative procedures. For example, the guidelines enable the prescription of a deadline — or even multiple deadlines throughout the year — by which employees must submit claims of QSLPs for matching.

If a match is found to be incorrect due to an employee’s self-certification, the plan sponsor is not required to correct the match. If a match is found to be incorrect as a result of administrative failures, however, the sponsor must correct impacted matches and remedy the operational errors at fault.

The design and implementation process of your student loan retirement match program will vary depending on a number of factors — especially when it comes to the external partners you involve. No matter your desired end state, here’s what needs to be considered when designing your SECURE 2.0 student loan match plan and planning its rollout:

How much should you budget for a student loan retirement match program?

If your organization’s retirement match budget allows for full enrollment and participation for traditional matching, introducing a student loan retirement match program will reallocate (but not increase) your budget, since student loan payments must be matched at the same rate as elective deferrals.
If your organization’s match budget assumes partial participation, you should expect your match budget to increase due to a boost in new enrollment and increased contributions from existing participants. After all, 80% of borrowers say they’d save more for retirement if it weren’t for their student debt.¹⁰

How will you certify payments for your 401(k) student loan match program?

QSLPs must be certified before they are eligible for matching. Candidly is fully equipped to serve as the end-to-end destination for this process, thus eliminating the administrative burden of an in-house process and offering a safeguard against incorrect match claims due to administrative error.

What is your communications and enrollment strategy for your student loan retirement match program?

HR leaders and plan advisors may have been hearing about student loan payment-matched retirement programs for the last few years, but to most employees, it’s an entirely new concept.

That in mind, communications to promote the program should:

• Use approachable language (no jargon!) to educate employees about the program
• Be segmented to appeal to both existing participants and employees who are not currently enrolled in your retirement plan.
  • Remember, many non-participants feel sidelined by their student debt and may assume a retirement savings benefit isn’t “for” them
• Refer employees to a resource through which they can find questions about the program. Strategies for this include:

How does a student loan retirement match program fit into your financial wellness ecosystem?

The final, and perhaps most important, consideration is to consider how a SECURE 2.0 student loan match offering fits into your organization’s broader financial wellness package. Ask these questions to identify how the program complements your existing benefits, and to identify gaps in your financial wellness package:

Candidly is equipped to fulfill key third-party administrative roles for student loan retirement match benefits — and go the extra mile by driving adoption and engagement, and providing an optimal user experience for participants and administrators alike.

Our Student Loan Retirement Match solution:

• Serves as an end-to-end destination for loan registration and payment certification, which eliminates the administrative burden of an in-house process and offers a safeguard against incorrect match claims due to administrative error
• Surfaces participant loan information in an easily digestible format that enables all stakeholders in your ecosystem to access the data they need to forecast budget utilization and perform match calculations with ease
• Helps to ensure adherence to claim and plan year deadlines with an automated participant communications plan, which includes the facilitation of the loan data and payor status assumption correction process
• Drives engagement and adoption by delivering clear, straightforward guidelines and educational content via enrollment communications and throughout the in-platform participant experience
• Delivers an elegant, digital experience, which includes the option to facilitate your Student Loan Retirement Match program alongside other financial wellness benefit solutions in the all-in-one Candidly platform
• Provides a best-in-class support program, led by an experienced Customer Success team that can offer stakeholders suggestions for considerations like program design and participant engagement