Key Takeaways: New IRS Guidance for SECURE 2.0 Student Loan Retirement Matching

On August 19, the IRS issued Notice 2024-63 to provide new guidance for student loan retirement matching, which was enabled by Section 110 of the SECURE Act 2.0. 

The guidance, which applies to plan years beginning after December 31, 2024, includes:

• Criteria for determining the eligibility of a student loan payment
• Clarification into the process for certifying payment claims
• Confirmation that employers and plan providers can enlist the expertise of a third-party service provider like Candidly to implement and administer their student loan retirement match program

Keep reading for a summary of our key takeaways on the following topics from the notice, and to learn how Candidly helps plan sponsors and administrators meet the new guidelines:

• Payment eligibility
• Payment certification
• Plan design
• Administrative procedures
• Match corrections
• How Candidly can help

Payment eligibility 

Per this guidance, 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.

Payments made to student loans for which the employee is a cosigner can be treated as QSLPs; however, payments made to student loans for which the employee is a guarantor cannot be treated as QSLPs. An employee who is a cosigner generally is obligated to make sure every monthly payment is met, whereas a guarantor generally is only responsible for the loan in the case that the primary borrower defaults.

For most plans, the maximum total value of QSLPs that can be matched for an employee in a given plan year is the lesser of:

• The 402(g) limit for the current tax year (for 2024, this is $23,000), or
• The employee’s compensation as defined in section 415(c)(3) minus any elective deferrals (or in the case of governmental 457(b) plans, salary deferrals) made by the employee in the plan year 

Payment certification

This new guidance clarifies that in order to certify a student loan payment as eligible for matching, the following information must be provided:

• (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

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 student loan retirement matches, and vice versa.

Plan sponsors cannot add additional eligibility criteria for defining QSLPs. For example, a sponsor cannot restrict their 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.

Administrative procedures

Provided they are reasonable and adhere to all IRS guidelines, plans or employers may establish their own procedures for administering their student loan retirement 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. (Note: an annual claim deadline should not fall earlier than three months following the end of the plan year unless the plan adopts alternative reasonable procedures, for example, to accommodate excise tax timing issues.)

Sponsors can also determine their own schedule for issuing contributions. QSLP-matched contributions must be issued at least annually, but can be issued at a different frequency than elective deferral matches.

Match corrections

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. However, if the sponsor chooses to carry out match corrections after a certification is found to be incorrect, they must issue consistent corrections for all other similarly incorrect certifications. 

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.

How Candidly helps

Candidly is equipped to fulfill key third-party roles outlined by the IRS guidance — 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

Note: This resource is intended to provide a high-level overview and not legal advice.  Please consult with counsel on the implementation of these guidelines.