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What CEOs and HR need to know about SECURE Act 2.0

SECURE Act 2.0, enacted at the end of 2022, has ushered in significant changes for retirement plans. While many changes are mandatory and will be handled by your third-party administrator, one optional provision should get leadership consideration: matching retirement contributions for student loan payments.

Generations of student loan debt

Deciding whether to pay down student loans or save for retirement can be a difficult decision. While employees may understand the power of time and compound interest, many people cannot afford to make both student loan payments and retirement contributions. As a result, they delay participation in their employer’s retirement savings plan, reducing their future financial security.

Now employers have a new tool to help. Beginning in 2024, employer-sponsored retirement plans, including 401(k)s, 403(b)s, and SIMPLE IRAs, can help employees save for the future while paying off their student loans. Employers will have the option of matching qualified student loan payments (QSLP) as if they were payments to the company retirement plan.

With student loan debt soaring, offering such an incentive could prove a valuable tool for employee attraction and retention. The Federal Reserve estimates that 30% of all adults who went to college owe a collective $1.7 trillion in student loans. That represents a significant percentage of the talent pool from which you’re recruiting.

Recognize that student loan debt is not just a young person’s issue. According to the Education Data Initiative, the majority of student loan debt is concentrated with Generation X (38.8%), followed by Millennials at 30.4%. Meanwhile, Baby Boomers still hold 18% of the overall federal student loan debt, and their per-borrower average is the highest of any generation at $45,000.

Key considerations

As would be expected, adding a QSLP match will increase the administrative complexity of your plan. Unfortunately, not all third-party administrators and service providers will be ready to implement the changes in 2024.

Companies that want to move fast and offer this benefit right away may need to replace their plan’s current providers. Organizations will also need time to plan an employee communication rollout.

As for the mechanics of a QSLP match, here are a few high-level notes:

  • Employees are required to certify that loan payments were made, but they do not have to show proof of payments. An employer can rely on employee certification alone.
  • QSLP contributions must vest in the same manner as salary deferral matching contributions.
  • Employers are permitted to make QSLP contributions less frequently than salary matches, although contributions must be made at least once a year.

Another optional change available under SECURE Act 2.0 would allow employers to offer participants the option to characterize employer matching funds as Roth contributions. Additionally, employers can now offer a special emergency savings account within their retirement plan, allowing non-highly compensated employees to make Roth after-tax contributions to this accessible account.