Student Loan Payment Match Anticipated Administration

With this effective 1/1/24 and I think limited guidelines on how to enact this, I'm thinking that it can be administered as follows for a plan that deposits match on a payroll basis:

• Participant provides a recent statement of the loan showing payment amount, and amortization schedule, or length of payment plan
• Payroll then treats equivalent payment per payroll (loan pmt x 12 / (24 or 26) ) for standard payroll schedules.
• Payroll then sums up 401(k) + equivalent loan payment and applies match formula on payroll basis.

Note these are just initial thoughts.

TPApril, I agree. But you'd think that some of the student loan servicers would link up with payroll providers to make the whole thing automatic. Maybe some are doing that.

11 hours ago, Luke Bailey said:

... But you'd think that some of the student loan servicers would link up with payroll providers to make the whole thing automatic. 

Our discussions with a variety of payroll providers usually starts with them responding with "Huh?" and goes no further.  The problem we see is that most client provide the payroll files extracted from their provider to us (a recordkeeper) without modification - hence no ability to add the student loan match on the "normal" file.  That creates an issue.  While still in discussions (and awaiting guidance), our plan sponsors seem to think they'll just do an annual match for these people, despite doing a payroll by payroll match for deferrals.  We have a problem there.  Possible BRF, possibly timing (and testing considerations), partly a "we're not going to do that this year (after having done the match for everyone else).  Our clients range from plans in the mid 5-figures to over a billion in assets, so, we have varying levels of sophistication (or lack thereof).

GUIDANCE PLEASE! (if the IRS is listening)

Can a plan sponsor get a business tax deduction for making an employee's student loan payment on his/her behalf?  

(If so, wouldn't it be easier to offer that benefit, and then the employee can contribute the corresponding amount as a salary deferral and just get a normal match?)

7 minutes ago, Bri said:

Can a plan sponsor get a business tax deduction for making an employee's student loan payment on his/her behalf?  

(If so, wouldn't it be easier to offer that benefit, and then the employee can contribute the corresponding amount as a salary deferral and just get a normal match?)

I don't think so (directly).  A deferral has to be an election - a Cash or Deferred Election.  Making the contribution directly obviates the election.  Given them a pay raise, and if they don't defer, evaluate whether they have the smarts to stay employed (but don't threaten!)

Right - the person wouldn't HAVE to defer, but would have more "not-earmarked-for-student-loan" take-home pay available to consider a deferral election.  But that way the person gets the retirement savings (both EE and ER), the loan payment gets made, and the overhaul to the tax code could have been just a little bit smaller.

with credit to Mercer at https://www.mercer.com/en-us/insights/law-and-policy/secure-2-0-student-loan-match-101/:

Quote

SECURE 2.0 places one limitation on Treasury regulations addressing procedures for claiming the QSLP match: Employees must have at least three months after the close of the plan year to claim the match. This requirement effectively restricts employers to making the QSLP match on an annual basis, even if the plan’s regular match is made more frequently, such as on a payroll period or quarterly basis. (As noted below, Treasury regulations must allow an employer to match QSLPs at a different frequency than employee contributions.)

maybe it can't be made on a payroll basis...

8 hours ago, Bri said:

Can a plan sponsor get a business tax deduction for making an employee's student loan payment on his/her behalf?  

(If so, wouldn't it be easier to offer that benefit, and then the employee can contribute the corresponding amount as a salary deferral and just get a normal match?)

From a tax perspective, sure. But the payment would be taxable income (FITW and FICA) to the participant, same as if the employee used after tax income to make their loan payment. Federal and state labor laws might or might not be an issue. Not my area(s) of expertise.

"This requirement effectively restricts employers to making the QSLP match on an annual basis, even if the plan’s regular match is made more frequently, such as on a payroll period or quarterly basis."

Is this really the case? I read the provision to say that you can't set the deadline for claiming the match at, say, 30 days after year end - you have to give participants at least three months to submit a claim (and could allow even longer than three months if desired, but I'm not sure that would be a great idea!). In my mind, that doesn't preclude you from funding it more frequently, it just means you may have to do a true up if a claim for an additional amount came in after the end of the year. Doesn't the part in the provision of the Act that allows for funding of the match on the student loan payments on a different frequency seem to allow for this? I guess it's just another thing we need guidance on!  

Fundamentally, this is not a payroll issue.  Student loan repayments are paid to the loan service provider.  A student may have multiple loans from multiple loan service providers.  Participants are submitting a claim in which case the participant controls the timing of that claim, and that can be up to 3 months after the close of the plan year.

There is no payroll related involvement with respect to participant compensation nor is payroll involved with the loan repayments.

It will be interesting to see if large recordkeepers think there is a sufficient population of plans and participants who wish to use this feature, or will the bulk of the administration be left to individual plan sponsors to build their own internal solutions.

On 10/30/2023 at 8:24 PM, Paul I said:

Fundamentally, this is not a payroll issue.  Student loan repayments are paid to the loan service provider.  A student may have multiple loans from multiple loan service providers.  Participants are submitting a claim in which case the participant controls the timing of that claim, and that can be up to 3 months after the close of the plan year.

There is no payroll related involvement with respect to participant compensation nor is payroll involved with the loan repayments.

It will be interesting to see if large recordkeepers think there is a sufficient population of plans and participants who wish to use this feature, or will the bulk of the administration be left to individual plan sponsors to build their own internal solutions.

Paul I, maybe you're right, but don't you think an employee could voluntarily set up revocable withholding of their student loan payment with employer's payroll provider? For long-term employees with stable loan servicing and only a few loans with long maturities could be a convenience I would think.

Part of the challenge is getting the loan provider to amortize the loan using repayments based on the payroll period.  This could be further complicated if there are more than one loan provider that require different loan repayment frequencies.

On 10/30/2023 at 3:24 PM, Paul I said:

Fundamentally, this is not a payroll issue.  Student loan repayments are paid to the loan service provider.  A student may have multiple loans from multiple loan service providers.  Participants are submitting a claim in which case the participant controls the timing of that claim, and that can be up to 3 months after the close of the plan year.

There is no payroll related involvement with respect to participant compensation nor is payroll involved with the loan repayments.

It will be interesting to see if large recordkeepers think there is a sufficient population of plans and participants who wish to use this feature, or will the bulk of the administration be left to individual plan sponsors to build their own internal solutions.

What I see as the payroll issue is not related to administration of loan payments, but rather administration of the match, wherein the match is calculated along with payroll, for periodic deposit along with the 401(k).

My initial thought was that a participant can present the terms of their loan up front, say with a statement showing that loan payments are being currently made, including the loan payment amount and amortization period.

I think what I'm getting is that the participant really has to present after the fact, ie after eoy, what the loan payments made were so that the appropriate match can be made at that time.

It does lead me to another question - does it matter if a participant pays more principal than just what is amortized during the year?

Here is a link to an outstanding article by McDermott, Will & Emery based on a webinar they presented in September.

https://www.mwe.com/insights/employer-student-loan-debt-benefits-following-secure-2-0/

It gets into the details about the requirements of QSLPs and identifies several outstanding questions for which we do not yet have answers.

The article reinforces my belief that payroll's role is minimal, and that much of the administration should be done by the plan's recordkeeper or a specialty service provider that is contracted to administer QSLPs either by the company or the recordkeeper.

It is interesting that there are firms that already are offering full QSLP administration services to companies and recordkeepers.  Here are two examples:

• https://www.meetsummer.com/recordkeepers
• https://getcandidly.com/student-loan-retirement-match/?gad_source=1

Anyone who does ADP/ACP compliance testing for a plan that allows QSLPs needs to explore the impact the QSLPs will have on their testing procedures and software.  One major potential problem is an employee has up until 3 months after the end of the plan year (think by April 1) to send in their student loan information and receive the associated match, but the ADP/ACP testing must be fully completed by March 15 (for calendar year plans) to avoid excise taxes.