IRS schools sponsors on SECURE 2.0’s new student loan match 

September 19, 2024

IRS Notice 2024-63 provides interim guidance for employers making matching contributions on employees’ “qualified student loan payments” (QSLPs). The SECURE 2.0 Act of 2022 (Div. T of Pub. L. No. 117-328) allows 401(k), 403(b), governmental 457(b) and SIMPLE IRA plans to offer QSLP matching contributions in plan years starting after Dec. 31, 2023. While the notice applies to plan years beginning after Dec. 31, 2024, employers offering QSLPs for the 2024 plan year can rely on a good-faith, reasonable interpretation of the statutory QSLP match provisions. IRS considers following the notice before its applicability date to be a good- faith, reasonable interpretation of the statute. IRS is accepting comments until Oct. 18.

Student loan payments are generally eligible for QSLP treatment if the employee incurred the loan solely to pay for attending (or for the employee’s spouse or dependent attending) an institute of higher education. Total loan payments eligible for QSLP treatment each year are capped at the annual limit on elective contributions under Internal Revenue Code (IRC) Section 402(g), reduced by the employee’s elective contributions during the year.

Loan must be incurred by employee. The notice clarifies that a loan is considered incurred by an employee if the employee has a legal obligation to make payments under the loan’s terms. This requirement is met if the employee is the primary debtor or a cosigner of the loan. However, an employee who is a guarantor isn’t considered to have incurred the loan unless it is in default.

Match limited to loan payments made during plan year. The notice confirms that QSLP matching contributions for a plan year may be made only for loan repayments made during the same plan year — even if the plan’s deadline for claiming the QSLP match is in the next plan year. In a footnote to the notice, IRS confirms that plans can’t offer QSLP matching contributions for loan payments made before the first day of the 2024 plan year.

Uniform eligibility for QSLP and regular matching contributions. Under SECURE 2.0, matching contributions on elective contributions and QSLPs generally must be subject to the same conditions, including eligibility conditions. The notice confirms that plans can’t deny the QSLP match to employees eligible for a match on their elective contributions or deny the elective contribution match to employees eligible for the QSLP match. Plans also can’t require an employee to be employed through the QSLP allocation date or apply any other allocation condition (e.g., a 1,000-hour or last-day-of-the-year employment requirement) that doesn’t apply to the plan’s match on elective contributions.

Applicability to different populations. The uniform eligibility requirement for matching contributions on QSLPs and elective contributions applies to an entire plan, so employees can’t be excluded from the QSLP match solely on the basis of factors like employer, division or unit. However, the notice confirms that IRS rules requiring disaggregation of certain populations for nondiscrimination testing purposes apply in this context. So, for example, an employer can offer the QSLP match to noncollectively bargained employees but not to collectively bargained employees. Employers participating in a multiple-employer plan or pooled employer plan also can decide whether to offer the QSLP match to their own employees.

Restrictions on loans eligible for QSLP match prohibited. A plan’s QSLP match must be available for all student loan payments that satisfy the requirements to be QSLPs. The notice explains that plans can’t limit a QSLP match to certain types of loans, such as loans for an employee’s own education or for specific degree programs or schools.

SECURE 2.0 requires employees claiming a QSLP match to annually certify to their employer that they made QSLPs. The statute allows employees to self-certify and permits employers to rely on the self-certification. The notice provides guidance on the required content of an employee’s certification and flexibility for employers on how to obtain it.

Required content. An employee’s certification must include certain information about the employee’s payments and confirmation that the payments are eligible for QSLP treatment.

• Payment data. The certification must include the dollar amounts and dates of the loan payments, and confirmation that the employee made the payments.
• Loan qualification. The certification must confirm that the loan is a qualified education loan used to pay the qualified higher education expenses of the employee (or the employee’s spouse or dependent) and that the employee incurred the loan.

Certification methods. The notice describes three methods of certification: affirmative certification, passive certification and independent verification. Any method is acceptable for certification of the required payment data, but employees must affirmatively certify the loan qualification data.

• Although the notice doesn’t explain the exact mechanics of affirmative certification, presumably a participant could do it through means like written or electronic attestation.
• With passive certification, the lender provides the dollar amounts and dates of the loan payments to the employer or plan. The plan then notifies the employee that the information has been received and will be accepted as correct unless the participant objects within a reasonable period. A plan relying on passive certification can assume the participant made the payments unless it has actual information to the contrary.
• Independent verification allows plans to independently determine the required payment data — for example, if loan payments are made through payroll deduction.

Loan registration. Employers can require or offer employees the option to register their loans with the plan. Registration satisfies the requirement to affirmatively certify the two loan qualification items. Employees would only have to register a loan once unless they refinance it or the information in the original registration changes.

Relief for incorrect certifications. A plan doesn’t have to take corrective action if an employee’s certification is later determined to be incorrect; the contribution can remain in the plan as a QSLP match. However, the notice doesn’t forbid correction as long as the plan corrects all errors made under similar circumstances. For example, a plan can correct QSLP matching contributions made after the employee’s student loans have been forgiven, but the plan must do so for all employees who received the match after their loans were forgiven. The notice clarifies that this rule doesn’t relieve a plan from correcting QSLP matches that shouldn’t have been made due to an operational error in administering the QSLP match (for example, because the employee failed to certify the necessary loan information).

SECURE 2.0 permits plans to have reasonable administrative procedures to implement a QSLP match. The notice explains that reasonableness is based on all relevant facts and circumstances, including whether the QSLP match is effectively available to all eligible employees and whether the procedures promote compliance with QSLP match requirements. The notice specifically addresses setting deadlines to claim the QSLP match and verifying an employee’s loan payments are eligible for QSLP treatment.

Deadlines for claiming QSLP match. SECURE 2.0 says a plan can establish reasonable procedures for employees to claim a QSLP match, including an annual deadline that is “not earlier than 3 months after the close of each plan year.” This language could be read to suggest that employees must have until at least three months after the end of the plan year to claim the QSLP match. However, IRS has interpreted the provision less prescriptively. The notice says such a deadline is deemed reasonable, but plans can have an earlier annual deadline or multiple deadlines (such as quarterly), as long as the deadlines are reasonable.

In a footnote, IRS acknowledges receiving comments expressing concern that a deadline of three months after plan year-end is later than the date by which many plans must correct failed actual deferral percentage (ADP) and actual contribution percentage (ACP) tests to avoid excise taxes. For plans that don’t include an eligible automatic contribution arrangement (EACA) feature, this date is 2-1/2 months after plan year-end. IRS explains that employers can avoid this predicament by either setting an earlier deadline for employees to claim the QLSP match or adding an EACA feature to their plans, which would extend the date to correct failed tests without an excise tax to six months after plan year-end.

Verification of employee’s certification. Although SECURE 2.0 lets plans rely on an employee’s self-certification of eligibility for the QSLP match, the notice clarifies that plans can require employees to substantiate their eligibility as long as the procedures for doing so are reasonable. However, a plan can’t establish passive or independent certification procedures that aren’t reasonably available with respect to a particular employee’s loan. For example, the notice says a plan that uses passive certification as described above (i.e., having the lender send loan data to the plan) must also allow an alternative means of verification (such as submitting cancelled checks or loan statements) for employees whose lenders won’t transmit the information.

SECURE 2.0 lets — but doesn’t require — plans to apply separate ADP tests to employees who do and don’t receive QSLP matching contributions. The notice allows two alternative methods of separate testing:

• Method 1. Under the first method, the plan runs one ADP test for employees who receive no QSLP match and a second test for employees who receive the QSLP match, regardless of whether they also make elective contributions. In the second test, both elective contributions and QSLPs count toward an employee’s ADP.
• Method 2. Under the second method, the plan runs one ADP test for elective contributions and a second test for QSLPs. Employees who make both elective contributions and QSLPs are counted in both tests, with their elective contributions counted only in the first test and QSLPs counted only in the second test.

Questions remain. Although the notice is helpful in illustrating permissible methods for running separate ADP tests, additional guidance is needed. For example, do employers need to state in their plan document whether the plan will perform separate ADP tests for employees who do and don’t receive the QSLP match? If so, must the document state which of the two methods will be used? Are there any restrictions on switching methods from year to year?

The notice also addresses several miscellaneous questions regarding QSLP matching contributions.

Midyear adoption by safe harbor plans. Employers with safe harbor plans can add a QSLP match midyear if the employer provides an updated safe harbor notice and gives employees an opportunity to make or change contribution elections as required under Notice 2016-16.

Deposit frequency. SECURE 2.0 directs Treasury to issue guidance allowing employers to contribute the QSLP and employee contribution matches at different frequencies, as long as the QSLP match is deposited at least annually. The notice acknowledges that plans can (for example) deposit the QSLP match annually and the elective contribution match on a biweekly payroll-period basis. Plans that have different deposit schedules for the two types of matches won’t violate the SECURE 2.0 requirement to make matching contributions on elective contributions and QSLPs at the same rate. The notice also explains that employers can but aren’t required to contribute the QSLP match on a rolling basis as employees certify their QSLPs.

Linked nonqualified plans. Some employers offer nonqualified deferred compensation plans that determine benefits using the formula under the employer’s qualified plan but disregarding qualified plan limits, or by offsetting the nonqualified benefit by the amount of the qualified plan benefit. If an employer with one of these arrangements offers a QSLP match under its qualified plan, an employee’s receipt of the QSLP match could result in changes to an employee’s nonqualified plan benefit. The notice clarifies that IRS won’t treat an employee’s action or inaction with respect to QSLPs as a violation of IRC Section 409A’s rules on election timing or as an impermissible acceleration payment of the nonqualified benefit. IRS intends to formalize this position in future updates to the 409A regulations.

SIMPLE IRAs. The notice generally applies to SIMPLE IRAs with a QSLP match feature, with some exceptions. For example, a SIMPLE IRA plan can follow the notice’s guidance on certifying an employee’s eligibility for a QSLP match. However, the guidance on nondiscrimination treatment is inapplicable to SIMPLE IRAs, and the maximum amount of loan payments eligible for QSLP under a SIMPLE IRA is based on the limits applicable to those plans rather than the IRC Section 402(g) limit.

• Notice 2024-63 (IRS, Aug. 19, 2024)
• News release (IRS, Aug. 19, 2024)
• Div. T. of Pub. L. No. 117-328, the SECURE 2.0 Act of 2022 (Congress, Dec. 29, 2022)

• SECURE 2.0’s student loan match 101 (June 13, 2023)
• User’s guide to SECURE 2.0 (regularly updated)