Employer contributions for student loan payment

There are some articles floating around related to encouraging younger employees to participate in 401(k) Plans while paying down substantial student loan debt, by making an employer contribution (described as a match) to the 401k plan. This is to encourage retirement savings, when younger employees are too saddled with college loan debt to participate in the 401(k) Plan. These have been described variously as an employer contribution conditioned to student loan debt payment, as a flat dollar incentive, or percentage of pay.

This appears to be a very different employee benefit from employer provided student loan incentive benefits that "match" student debt payments, which (as far as I know) continue to be taxable to the employee with the student loan debt.

My client is interested in this  as incentive for attracting millenial employees, and encourage them to pay off debt sooner, so they can afford to make 401(k) contributions.  But there is little information out there on this topic. I do not think there is any mechanism to call this a match, if there are actual employee elective deferrals.  So I assume this would be incorporated into a plan as a "profit sharing" contribution. 

I suppose you could create allocation categories with one of them being "participants who are paying college debt", and providing a flat dollar allocation or % of pay allocation only to that group.....and  exclude HCEs (in the event there are any in that category). 

There are companies selling this as an administration service, but it appears that in order to utilize this "service", the participants have to refinance their student loans through the service provider. This gives rise to additional concerns.

Has anyone out there designed such a 401k plan provision?     

I have read about this before but never looked at all the detail.  The way I understood it at the time, it was a employer contribution made to the plan conditioned upon student loan payments, but regardless of whether the participant makes 401(k) contributions.  I think it was a PWC product aimed at larger corporations.

I have also seen a different approach, but again I havent really looked at the details.  This approach would be that the participant with student loan debt defers comp to the plan, and in turn, the company makes a payment directly to the student loan company.  Lets say the company agrees to pay off up to $1,200 per year of student loan debt if the employee defers at least $1,200.  So the employee defers $100 per month, and the company makes $100 a month in loan payments.  The loan payments would be taxable income to the participant, but the participant is also building a balance in the account. 

The employer probably could not condition making payments on the student's loan on the employee making deferrals to the 401(k). This would seem to violate the contingent benefit rule of Reg Sec 1.401(k)-1(e)(6). There's a similar rule under the 403(b) regs.

There's nothing preventing the employer contribution to the 401(k) based on the employee making student loan payments as a profit-sharing contribution, other than the general nondiscrimination rules.

Slider, good call!  I remember even that a raffle for an iPad is  not allowed.  i.e., if you sign up for the 401k, your name is entered into a Raffle for an iPad.  Subtle but it's very clear a match is the exclusive means of rewarding participation in the plan. 

Here's the recent article describing Abbot's program. It was actually covered in the NY Times.  It is simply a contribution to the participant's account BASED on some function of his student loan repayment, verified by an outside firm.  Not all that creative; as long as the participant's are NHCEs it will work very well. If you put each employee in his/her own rate group, then you don't even need special language in the plan to make it happen.  Hope this helps.

Abbott Uses 401(k) Matching as Incentive for Student Loan Payments

https://www.cebglobal.com/talentdaily/abbott-uses-401k-matching-as-incentive-for-student-loan-payments/

4 hours ago, Slider said:

The employer probably could not condition making payments on the student's loan on the employee making deferrals to the 401(k). This would seem to violate the contingent benefit rule of Reg Sec 1.401(k)-1(e)(6). There's a similar rule under the 403(b) regs.

There's nothing preventing the employer contribution to the 401(k) based on the employee making student loan payments as a profit-sharing contribution, other than the general nondiscrimination rules.

Good point.

Articles about Abbott's plan mention they received a PLR. Does anyone have a reference to that PLR?

Thanks All.  Larry-  I did find some articles (though not the one you provided), but have not yet heard form any practitioners that have actually designed such a provision.  I am troubled by this employer contribution being characterized in many of the articles  as a "match" when there are no elective deferrals being made. I assume that is just semantics in the articles, and it would be structured as described as a non-elective contribution to a specific group or individuals.

3 hours ago, Eve Sav said:

Thanks All.  Larry-  I did find some articles (though not the one you provided), but have not yet heard form any practitioners that have actually designed such a provision.  I am troubled by this employer contribution being characterized in many of the articles  as a "match" when there are no elective deferrals being made. I assume that is just semantics in the articles, and it would be structured as described as a non-elective contribution to a specific group or individuals.

Almost every one of my clients with a non-elective safe harbor calls it a match and I am always reminding them to STOP DOING THAT, but it doesn't seem to have any holding power...

I would not worry about what it is called; it matters what it actually IS. For example, we ALL talk about 401(k) plans as if they exist, when really they are all profit sharing plans with a cash or deferred election. Yeah, there is no such thing as a 401(k) plan, but try to make stick! :-)

As long as the plan language allows for what the employer is doing, they can call it anything they want so long as they don't mis-explain what they are doing (ERISA rights can attach to explanations that are in error, so it does matter how they actually explain it, even if they use the word "match").

Hope that helps.

16 hours ago, Larry Starr said:

Almost every one of my clients with a non-elective safe harbor calls it a match and I am always reminding them to STOP DOING THAT, but it doesn't seem to have any holding power...

 

It's an impossible battle! But it's worse when a co-worker, who should know better, does it. 

The really odd term a lot of my clients use is calling a contribution a "distribution" to the participants.  I always have to stop and decide are they talking about putting money into a plan or taking it out.  Not sure why so many of them do it but they do.  

Thread way off topic now!

2 hours ago, ESOP Guy said:

The really odd term a lot of my clients use is calling a contribution a "distribution" to the participants.  I always have to stop and decide are they talking about putting money into a plan or taking it out.  Not sure why so many of them do it but they do.  

I have a few clients that do this too. I think it's just that they're looking at it from the point of view of their own (employer) books, not the plan. As far as they're concerned, the money is being "distributed" by the employer to the participants' accounts.

Hey, at least we know they understand that the plan assets are separate from the employer assets!

On ‎7‎/‎9‎/‎2018 at 12:00 PM, Benefitsguest said:

Articles about Abbott's plan mention they received a PLR. Does anyone have a reference to that PLR?

Private letter rulings become publicly available 90 days after they are issued, I believe.

6 hours ago, MWeddell said:

Private letter rulings become publicly available 90 days after they are issued, I believe.

I couldn't find the 90 day reference; this is what IRS says on it's own website:

PLRs are generally made public after all information has been removed that could identify the taxpayer to whom it was issued.

A treatise on a law firm website said this:

A redacted version of every Private Letter Ruling is published within a few months of being issued, and these become very important for tax lawyers to study, to note and identify trends in the law and how the IRS addresses certain circumstances.