IRS Addresses 401(k) Student Loan Benefit Programs

In a recently released private letter ruling, the IRS addressed an employer seeking to offer a “student loan benefit program” as part of its 401(k) plan. In short, under this option, the employer would make non-elective contributions if the employee made student loan repayments.

Under the proposal, the employer would make non-elective contributions on behalf of the employee conditioned on the employee making student loan repayments ("SLR non-elective contribution"). The program would be voluntary and after enrolling the employee could opt-out. Importantly, if the employee enrolled in the student loan benefit program, the employee could still make elective contributions to the plan, but would not receive regular matching contributions with respect to those elective contributions (again, while participating in the student loan benefit program). If an employee later opts out of the program, the employee would resume his or her eligibility for regular matching contributions. Finally, the student loan repayment non-elective contribution would be subject to applicable plan qualification rules, such as eligibility, vesting, distribution, contribution limits, and nondiscrimination provisions.

This information was developed as a general guide to educate plan sponsors, but is not intended as authoritative guidance or tax or legal advice.  Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation.  In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.