On December 29, 2022, Biden signed H.R.2617, the Consolidated Appropriations Act of 2023, into law. Hidden within this appropriations bill are several retirement provisions under the section named “Division T – The SECURE 2.0 Act of 2022” (PDF Page 817).

In this series, I am reviewing the major changes created by this act. This article is about “SEC. 110. TREATMENT OF STUDENT LOAN PAYMENTS AS ELECTIVE DEFERRALS FOR PURPOSES OF MATCHING CONTRIBUTIONS.” (starts on PDF Pages 832-834). The amendments made by this section apply to contributions made for plan years beginning after December 31, 2023.

Starting in 2024, employers who amend their plan documents to include this benefit can have student loan payments made to a “qualified education loan” count as salary deferrals for the purpose of calculating and awarding an employer match. In other words, if your employer offers matching retirement plan contributions for deferrals up to some percentage of your salary, then your employer would be allowed to do that matching on salary deferrals or student loan payments up to that limit as though they were salary deferrals.

This may benefit, according to a 2021 MagnifyMoney survey , the 17% of workers who do not contribute to their workplace retirement plan as well as the 12% of those who do contribute, but insufficiently to receive the full company match. If failing to receive an employer match is due to needing the money for student loan payments, participants under these new rules could report their student loan payments to their employer to receive the match.

“Qualified education loans” include only loans incurred by yourself to pay for high education expenses for yourself, your spouse, or your dependent taxpayer. Loans incurred by someone else which you make payments to would not count. So for example, payments for student loans incurred by your spouse would not be eligible for your employer’s match.

This amendment applies to 401(k) plans, 403(b) plans, SIMPLE IRAs, and governmental 457(b) plans.

You can read the details of this amendment below.

Qualified education loan is defined in Section 221(d)(1):

(1) Qualified education loan

The term “qualified education loan” means any indebtedness incurred by the taxpayer solely to pay qualified higher education expenses—
(A) which are incurred on behalf of the taxpayer, the taxpayer’s spouse, or any dependent of the taxpayer as of the time the indebtedness was incurred,
(B) which are paid or incurred within a reasonable period of time before or after the indebtedness is incurred, and
(C) which are attributable to education furnished during a period during which the recipient was an eligible student.
Such term includes indebtedness used to refinance indebtedness which qualifies as a qualified education loan. The term “qualified education loan” shall not include any indebtedness owed to a person who is related (within the meaning of section 267(b) or 707(b)(1)) to the taxpayer or to any person by reason of a loan under any qualified employer plan (as defined in section 72(p)(4)) or under any contract referred to in section 72(p)(5).

Section 401(m)(4)(A) was amended as follows:

(A) Matching contribution

The term “matching contribution” means—
(i) any employer contribution made to a defined contribution plan on behalf of an employee on account of an employee contribution made by such employee,
(ii) any employer contribution made to a defined contribution plan on behalf of an employee on account of an employee’s elective deferral, and

(iii) subject to the requirements of paragraph (14), any employer contribution made to a defined contribution plan on behalf of an employee on account of a qualified student loan payment.

…

(D) QUALIFIED STUDENT LOAN PAYMENT.—The term ‘qualified student loan payment’ means a payment made by an employee in repayment of a qualified education loan (as defined in section 221(d)(1)) incurred by the employee to pay qualified higher education expenses, but only—
(i) to the extent such payments in the aggregate for the year do not exceed an amount equal to—

(I) the limitation applicable under section 402(g) for the year (or, if lesser, the employee’s compensation (as defined in section 415(c)(3)) for the year), reduced by

(II) the elective deferrals made by the employee for such year, and

(ii) if the employee certifies annually to the employer making the matching contribution under this paragraph that such payment has been made on such loan.
For purposes of this subparagraph, the term ‘qualified higher education expenses’ means the cost of attendance (as defined in section 472 of the Higher Education Act of 1965, as in effect on the day before the date of the enactment of the Taxpayer Relief Act of 1997) at an eligible educational institution (as defined in section 221(d)(2)).

Section 401(m)(13):

(13) MATCHING CONTRIBUTIONS FOR QUALIFIED STUDENT LOAN PAYMENTS.—
(A) IN GENERAL.—For purposes of paragraph (4)(A)(iii), an employer contribution made to a defined contribution plan on account of a qualified student loan payment shall be treated as a matching contribution for purposes of this title if—
(i) the plan provides matching contributions on account of elective deferrals at the same rate as contributions on account of qualified student loan payments,
(ii) the plan provides matching contributions on account of qualified student loan payments only on behalf of employees otherwise eligible to receive matching contributions on account of elective deferrals,
(iii) under the plan, all employees eligible to receive matching contributions on account of elective deferrals are eligible to receive matching contributions on account of qualified student loan payments, and
(iv) the plan provides that matching contributions on account of qualified student loan payments vest in the same manner as matching contributions on account of elective deferrals.
(B) TREATMENT FOR PURPOSES OF NONDISCRIMINATION RULES, ETC.—

(i) NONDISCRIMINATION RULES.—For purposes of subparagraph (A)(iii), subsection (a)(4), and section 410(b), matching contributions described in paragraph (4)(A)(iii) shall not fail to be treated as available to an employee solely because such employee does not have debt incurred under a qualified education loan(as defined in section 221(d)(1)).
(ii) STUDENT LOAN PAYMENTS NOT TREATED AS  PLAN CONTRIBUTION.—Except as provided in clause (iii), a qualified student loan payment shall not be treated as a contribution to a plan under this title.
(iii) MATCHING CONTRIBUTION RULES.—Solely for purposes of meeting the requirements of paragraph (11)(B), (12), or (13) of this subsection, or paragraph (11)(B)(i)(II), (12)(B), (13)(D), or (16)(D) of subsection (k), a plan may treat a qualified student loan payment as an elective deferral or an elective contribution, whichever is applicable.
(iv) ACTUAL DEFERRAL PERCENTAGE TESTING.—In determining whether a plan meets the requirements of subsection (k)(3)(A)(ii) for a plan year, the plan may apply the requirements of such subsection separately with respect to all employees who receive matching contributions described in paragraph (4)(A)(iii) for the plan year.
(C) EMPLOYER MAY RELY ON EMPLOYEE CERTIFICATION.—The employer may rely on an employee certification of payment under paragraph (4)(D)(ii).

For SIMPLE retirement accounts, Section 408(p)(2) was amended to include:

(F) MATCHING CONTRIBUTIONS FOR QUALIFIED STUDENT LOAN PAYMENTS.—
(i) IN GENERAL.—Subject to the rules of clause (iii), an arrangement shall not fail to be treated as meeting the requirements of subparagraph (A)(iii) solely because under the arrangement, solely for purposes of such subparagraph, qualified student loan payments are treated as amounts elected by the employee under subparagraph (A)(i)(I) to the extent such payments do not exceed—
(I) the applicable dollar amount under subparagraph (E) (after application of section 414(v)) for the year (or, if lesser, the employee’s compensation (as defined in section 415(c)(3)) for the year), reduced by
(II) any other amounts elected by the employee under subparagraph (A)(i)(I) for the year.
(ii) QUALIFIED STUDENT LOAN PAYMENT.—For purposes of this subparagraph—
(I) IN GENERAL.—The term ‘qualified student loan payment’ means a payment made by an employee in repayment of a qualified education loan (as defined in section 221(d)(1)) incurred by the employee to pay qualified higher education expenses, but only if the employee certifies to the employer making the matching contribution that such payment has been made on such a loan.
(II) QUALIFIED HIGHER EDUCATION EXPENSES.—The term ‘qualified higher education expenses’ has the same meaning as when used in section 401(m)(4)(D).

(iii) APPLICABLE RULES.—Clause (i) shall apply to an arrangement only if, under the arrangement—
(I) matching contributions on account of qualified student loan payments are provided only on behalf of employees otherwise eligible to elect contributions under subparagraph (A)(i)(I), and

(II) all employees otherwise eligible to participate in the arrangement are eligible to receive matching contributions on account of qualified student loan payments.

For 403(b) plans, Section 403(b)(12)(A) was amended:

(12) Nondiscrimination requirements

…

The fact that the employer offers matching contributions on account of qualified student loan payments as described in section 401(m)(13) shall not be taken into account in determining whether the arrangement satisfies the requirements of clause (ii) (and any regulation thereunder).

For 457 Plans, Section 457(b) was amended:

(b) Eligible deferred compensation plan defined

…

(12) Nondiscrimination requirements
…

The fact that the employer offers matching contributions on account of qualified student loan payments as described in section 401(m)(13) shall not be taken into account in determining whether the arrangement satisfies the requirements of clause (ii) (and any regulation thereunder).

…
A plan which is established and maintained by an employer which is described in subsection (e)(1)(A) shall not be treated as failing to meet the requirements of this subsection solely because the plan, or another plan maintained by the employer which meets the requirements of section 401(a) or 403(b), provides for matching contributions on account of qualified student loan payments as described in section 401(m)(13).

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