Student Loan 401(k) program

[bmore1147]

Is anyone familiar with the Abbott PLR that was used to implement the student loan contribution arrangement? I read the PLR, and was under the impression that this was a Non-Elective contribution, subject to all the eligibility and vesting requirements of the NE contribution - However, Empower just launched a Student Loan program, and the employer contribution will be made as a QNEC -  

my questions

1- was the PLR based on a QNEC? That term and any reference to that term was not part of the PLR. 

2. if you do proceed with a QNEC - can you place a last day/1000 hours requirement on the contribution? I assume you can't do anything about vesting

https://www.groom.com/resources/irs-private-ruling-on-student-loan-benefit-under-401k-plan-likely-to-fuel-interest/

[Patricia Neal Jensen]

Private Letter Ruling.  No reliance.

[Luke Bailey]

1. Yes and 2. Yes. Since contributions will be based on student loan repayments, will not bear any sort of direct relationship to pay or other typical factors. Will need to general test.

[Peter Gulia]

If you want to read the letter-ruling request and the full facts, presumably including the retirement plan’s documents, consider requesting (under the Freedom of Information Act) the whole administrative record.

 

The Internal Revenue Service likely would redact some information that identifies the applicant, other taxpayers, and other people.  (In my experience, the IRS redacted more than I asked for.)  But the redactions shouldn’t impede getting the information you’re looking for.

[bmore1147]

I read the PLR, but there was no mention of this contribution being a QNEC -

specifically, from the PLR 

"The SLR nonelective contribution will be subject to all applicable plan qualification requirements including, but not limited to, eligibility, vesting, and distribution rules, contribution limits, and coverage and nondiscrimination testing"

If this was a QNEC, it would be 100% immediate vesting - so I'm confused as to how this was explained in the PLR and how it appears to be executed. 

I'm trying to reconcile how QNEC, a separate money source, was derived from this PLR that made no mention of it and appears to place non-elective eligibility/vesting requirements on this contribution

 

[Luke Bailey]

1 hour ago, bmore1147 said:

I read the PLR, but there was no mention of this contribution being a QNEC -

specifically, from the PLR 

"The SLR nonelective contribution will be subject to all applicable plan qualification requirements including, but not limited to, eligibility, vesting, and distribution rules, contribution limits, and coverage and nondiscrimination testing"

If this was a QNEC, it would be 100% immediate vesting - so I'm confused as to how this was explained in the PLR and how it appears to be executed. 

I'm trying to reconcile how QNEC, a separate money source, was derived from this PLR that made no mention of it and appears to place non-elective eligibility/vesting requirements on this contribution

 

bmore1147, I apologize. I thought (not very carefully, I confess) that you were using QNEC as shorthand for any nonelective contribution to K plan. The amounts in question would not have to be and would typically not be QNECs, but rather simply nonelective contributions that could be subject to vesting and the distribution restrictions applicable to nonelective contributions as opposed to QNECs. Glad you caught that.

[Bird]

The Q is, how did Empower get from the PLR to using QNECs?  I think they just figured, probably correctly, that with more liberal eligibility and vesting, that it should be ok.

I hesitate to comment with any authority or conviction because I couldn't care one tiny bit about these dumb programs and am not really paying attention.

[bmore1147]

until the laws are changed to allow employers to write off or have some tax benefit for direct student loan payments for existing student loans, we will continue to see this solution gain traction- multiple firms, including Travelers company plan, have introduced a student loan contribution through the 401k plan - given the nuances and the testing requirements- especially since a NE contribution like this would probably be better suited for individual rate groups, TPA's are a far superior administrator for this solution than a bundled recordkeeper fumbling through this, as Empower most likely will given that even QNEC's need to pass coverage. 

 

[Luke Bailey]

3 hours ago, Bird said:

The Q is, how did Empower get from the PLR to using QNECs?  I think they just figured, probably correctly, that with more liberal eligibility and vesting, that it should be ok.

I hesitate to comment with any authority or conviction because I couldn't care one tiny bit about these dumb programs and am not really paying attention. 

Bird, the business rationale is clear. Some millenials (and others, of course), even if responsible about money, find it hard to benefit from employer match because of weight of student loan debt. So employer figures, here is A over here, who doesn't defer and get match, but is in every other way (e.g., responsibility, quality of work, and my overall desire to keep him or her as an employee) equally worthy of getting tax-sheltered matching contributions as B, but A doesn't contribute because hasn't got sufficient funds left over after paying student loans. So my match doesn't incentivize A. Aha! I make matching contributions for A as if his or her student loan repayments were 401(k) deferrals.

I think it's a great solution where it fits. Has some payroll complexity, of course.

[shERPA]

I get the idea, we've had a couple clients ask about it.  Assuming a PS contribution is allowed in the plan, and further assuming the allocation method is "every participant is a separate group", it seems like something a plan sponsor can just do. 

If it benefits only NHCEs, then it's a deemed pass for coverage and non-discrimination.  If there are HCEs also, then need to test.  If there is other PS contribution, just add it in for testing of the PS.