Today’s employers must compete hard to attract and retain top talent. If your organization is in this fight, you may be looking for a competitive edge. Well, here’s one to consider: helping employees with their student loans.
In February, MissionSquare Research Institute, a research firm specializing in the public service sector, released the results of a survey of more than 2,000 U.S. employees in both the private and public sectors. The data showed that 62% of private-sector employees and 56% of public-sector employees consider their student loans before accepting a job offer. And only 34% of private-sector workers and 39% of public-sector workers with student loans say they’re likely to stick with their current employers.
Survey results such as these indicate that many job candidates and employees would strongly value a fringe benefit that helps them repay their student loans. As fate would have it, the SECURE 2.0 Act, which took effect in 2024, allows employers to provide just that.
A kind of match
Under SECURE 2.0, employers that sponsor 401(k), 403(b) or 457(b) plans, or SIMPLE IRAs, may make matching contributions to participants’ retirement accounts that align with qualified student loan payments (as defined under the act). So, as participants pay their loan servicers, the employer can ensure their retirement accounts still receive funding — even if employees opt not to contribute to their accounts.
To qualify, participants’ student loans must be administered under their own names and payments need to meet certain plan verification standards. Employers can use various methods to verify payments and rely on employee self-certification rather than require loan documentation.
Important: You must amend your qualified plan documents to describe a student loan repayment benefit and comply with nondiscrimination testing rules to treat eligible participants equitably.
As of this writing, the most recent IRS guidance on these arrangements was issued in August 2024 as Notice 2024-63. It clarified plan administration requirements, including testing methods and compliance frameworks.
Advantages for both parties
Under the right circumstances, helping employees pay down their student loans in this manner can provide advantages for both parties. Many workers have long had to choose between paying on their loans and saving for retirement. Even if some could contribute to their retirement accounts, those contributions were often small. Now, at a minimum, they can fund their accounts with employer contributions as they make student loan payments.
For employers, the chief advantages are as mentioned — this fringe benefit can be a difference maker in separating your organization from others with whom you’re competing for talent. It can help you both attract strong job candidates and retain good employees. Moreover, it signals to your workforce that you care about their financial wellness and mental health.
Last but not least, employer contributions made under this SECURE 2.0 provision are generally tax deductible as a business expense. This at least mitigates some of the cost involved.
Next steps
If you may want to add a student loan repayment matching feature to your qualified retirement plan, exercise patience and be prepared for due diligence. Next steps should begin with an internal assessment of whether it’s feasible within your current benefits framework. You also need to ensure an adequate number of employees would value this “benefit within a benefit.” A workforce survey may be in order.
Typically, employers need anywhere from six to 12 months of planning to effectively deploy matches to student loan payments under a qualified retirement plan. Part of that planning must include a detailed communications strategy to educate employees about the feature, promote engagement and answer questions. This strategy could and perhaps should be rolled into a wider educational program on financial wellness.
Optimal combo
The right combination of benefits, tailored to the demographics and priorities of your workforce, is essential to successful hiring and stable employee retention. Matching student loan payments may be a worthwhile addition. Contact us for further information and help with cost-related due diligence.
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