The interim guidance is effective for plan years beginning after December 31, 2024.

The IRS is requesting comments on or before October 18, 2024. The IRS intends to issue proposed and final regulations. Until then, plan sponsors may rely on the guidance as a good-faith, reasonable interpretation of the statute, which was effective starting with 2023 plan years, for all years prior to the effective date of final regulations.

Background

Prior to SECURE 2.0, plan sponsors could only match participants’ elective contributions made to a DC plan. Some sponsors sought a way to also allow matches on account of repayment of student debt because workers repaying educational debt frequently cannot afford to also make elective contributions. Those workers miss out on the “free retirement money” that matching contributions represent. Not only does this hurt the ability of workers to start accumulating meaningful retirement funds early but, in some cases, it resulted in plans having difficulty passing nondiscrimination testing.

Under SECURE 2.0’s qualified student loan payment (QSLP) provision, a plan sponsor that wishes to do so may make matching contributions to a plan based on educational loan repayments. The repayments eligible for this QSLP match are limited by the maximum amount of permissible elective contributions ($23,000 in 2024) reduced by the elective contributions made to the plan for the plan year.

The IRS guidance

In August 2024, the IRS issued Notice 2024-63 providing answers to many of the pending uncertainties.

The guidance addresses:

• Eligibility rules and definitions
• Certification requirements
• QSLP match procedures
• Nondiscrimination testing
  
  

Eligibility rules and definitions

The repayment must be for a “qualified education loan,” which is a loan incurred by the worker to pay qualified higher education (QHE) expenses. QHE expenses are limited generally to the tuition cost of the worker, the worker’s spouse or the worker’s dependent attending an eligible educational institution. Generally, all workers eligible to make elective contributions, and only those workers, must be eligible for QSLP matches. The Internal Revenue Code’s disaggregation rules may be applied so that a sponsor can treat collectively bargained workers and non-collectively bargained workers differently.

The rules do not allow a plan sponsor to limit the types of loans that will qualify for a QLSP match. The plan cannot limit QSLP matches to loans for the worker’s (as opposed to a spouse’s or dependent’s) education, for a particular degree program or for attendance at a particular school.

The worker must have a legal obligation to repay the loan. A guarantor (e.g., a parent) has a legal obligation but is not treated as being able to receive matching contributions for paying the loan unless, and until, the primary borrower (e.g., his or her child) defaults. Also, the QSLP match contributed for a plan year must be based on a qualified loan payment that was made during the same plan year.

Certification requirements

Worker certification of the loan payment is required. A plan may require certification for each loan payment or annual certification. Notice 2024-63 provides several alternative ways for a worker to make a certification.

The IRS requires five items to be certified:

1. The amount of the loan payment
2. The date of the loan payment
3. That the payment was made by a worker
4. That the loan being repaid was a qualified education loan used to pay for higher education expenses for the worker, their spouse or their dependent
5. That the loan was incurred by the worker

Notice 2024-63 provides options for certifying. The method of certification is left to the plan sponsor. The plan may require “affirmative” certification by the worker. For some items the plan could allow certification by the loan administrator. One method of independent verification is to allow the worker to make payments through payroll deduction.

For some items, certification occurs if the worker registers the loan with the plan before making the first loan payment.

The plan must receive information about items 1–3, above, annually. If the loan is registered, annual information for items 4 and 5 is not required unless the worker has refinanced the loan or there are changes in information.

A match based on incorrect information does not need to be corrected even if a worker’s certification of a QSLP is determined later to be incorrect. If a plan chooses to correct such a match, it may do so only if it corrects all other matches made under similar circumstances. The option not to correct does not apply to operational failures.

QSLP match procedures

A plan may establish any reasonable administrative procedures for making matching. Whether a procedure is reasonable depends on all the facts and circumstances, including whether the matches are effectively available to all eligible workers.

A plan may provide for different contribution frequencies and dates for making QSLP match contributions and other match contributions. The QSLP match contributions must be made no less frequently than annually.

A plan may establish a single match claim deadline or multiple deadlines (e.g., quarterly) but each must be reasonable based on all the facts and circumstances. The notice says an annual claim deadline that is three months after the end of the plan year is an example of a reasonable deadline.

However, in a footnote, the notice recognizes that such a deadline might impose problems with the timing of testing to determine whether an excise tax can be avoided because of excess amounts. Removal of the excess generally must be made by 2½ months after the end of the plan year.

Further clarification on timing issues is expected.

Nondiscrimination testing

Matching contributions are tested under the actual contribution percentage (ACP) nondiscrimination test. SECURE 2.0 allows the QSLP matches to tested as if they were an ordinary match.

The special rules apply to actual deferral percentage (ADP) testing for elective contributions. SECURE 2.0 allows alternative ways to do ADP testing in plans that allow QSLP matches.

The plan may elect to make no distinction among those who make QSLPs and receive matches and those who don’t make QSLPs and receive matches.

The plan may instead choose to make a distinction between those who make QSLPs and receive matches and those who don’t. If the plan makes a distinction, they have a choice between two methods for running the ADP test.

• Under Method 1, workers who receive matching contributions from making QSLPS (whether or not they make elective contributions) are treated as a separate group with a separate ADP test and are excluded from the Method 1 main ADP test.
• Under Method 2, the separate group covers those who receive matching contributions from making QSLPs but in this case it is only those who do not also make elective contributions. It is also only this group that is excluded from the Method 2 main ADP test.

QSLP matches may be made to 403(b) and nongovernmental 457(b) plans in a manner similar to 401(k) plans. These plans, of course, are not subject to ADP and ACP testing.

Next steps

In addition to general comments, the IRS would like specific comments on what additional guidance is needed on certification and on coordination of the QSLP match and elective contribution amounts. The IRS intends to provide further guidance in proposed regulations.

Notice 2024-63 provides enough guidance to implement the QSLP provision if the sponsor concludes that it wants to include such a provision to attract younger workers or to help nondiscrimination testing. The provision is optional so there is no legal requirement driving adoption.