By: Cindy Love, CPA
A private letter ruling released on Aug 17, 2018 by the Internal Revenue Service signals its willingness to allow companies to make 401(k) matching contributions on qualifying student loan payments that employees make.
Student loans make up the largest non-housing consumer debt in the United States and many millennials are so burdened by paying off these loans that they are not contributing to their workplace 401(k) plans. Only half of all of millennials are contributing to their employer plans.
The ruling by the IRS makes it clear that their approval of this plan is only applicable to the individual company that applied and received their approval but it raises the possibility that it reflects their intention to adjust the law to allow other employers to re-design their retirement plans to include this student loan benefit. Under the design, an employee with student loans would be able to enroll in the plan, make monthly student loan payments, and have their employer make matching contributions into the employee 401(k) retirement account, up to a certain amount.
The ERISA Industry Committee (ERIC), which advocates on behalf of large employers, on Aug 29th, sent the IRS correspondence asking that it broaden the reach of their private letter ruling to enable all sponsors to implement similar contributions. Until the IRS issues expanded guidance, employers wishing to put such a program in place should consult legal counsel.