The IRS Answers Many Questions About QSLP Matching Contributions

One of the most welcome provisions of the SECURE Act 2.0 was the creation of an optional retirement plan provision that permits matching contributions to be made with respect to qualified student loan payments (QSLPs). Ever since 2018 when Abbott Laboratories received a private letter ruling approving their innovative plan provision to provide nonelective contributions for certain employees making student loan payments, plan sponsors have been eager to provide a similar program in their retirement plans.

SECURE Act 2.0’s Section 110 was, however, short on details regarding QSLP matching contributions, and few plan sponsors have adopted the provision to this point. That may change with the issuance of Notice 2024-63 (the “Notice”) on August 19, 2024, by the Internal Revenue Service (IRS), which fills in some of the compliance holes left by SECURE Act 2.0.

What’s in the Notice?

The Notice, in a question-and-answer format, begins with an overview and then continues by answering some of the basic questions about (i) implementing a QSLP matching contribution plan provision, (ii) securing employee certifications, (iii) implementing reasonable procedures, (iv) Actual Deferral Percentage (ADP) testing, and (v) miscellaneous topics that include certain corrections. In some cases, helpful examples are given to illustrate applicable requirements.

Overview of QSLP matching contributions requirements. Plans that may adopt a QSLP matching contribution feature are 401(k), 403(b), 408(p) SIMPLE IRA, and governmental 457(b) plans. QSLPs are defined as payments made to repay a “qualified education loan,” which is any indebtedness of an individual used to pay for qualified higher education expenses incurred on behalf of the employee, the employee’s spouse or any dependent of the employee. (As a reminder, such a loan must be for expenses to attend a post-secondary school, including tuition and fees, books and supplies, and room and board.) For 401(k) and 403(b) plans, QSLPs, together with elective deferrals, cannot exceed the limit under Section 402(g) of the Internal Revenue Code (“Code”), which, for 2024, is $23,000. Additionally, matching contributions for one plan year cannot be made based on QSLPs that were made during a different plan year.

The Notice also provides some parameters for the design of the QSLP matching contribution feature. QSLP matching contributions cannot be limited:

• To qualified education loans in connection with only certain degree programs (for example, Bachelor of Arts or Master of Business Administration).
• To attendance at only certain schools.
• By offering such matches to only some employees who are eligible for matching contributions on account of elective deferrals (except that a plan may exclude collectively bargained employees).
• By conditioning the matching contributions on an employee remaining employed through the allocation date or being employed on the last day of the plan year.

Requirement for employee certification. Matching contributions on QSLPs can only be made if adopting plans require that employees provide a certification on a plan-year basis or on a payment-by-payment basis. To satisfy this requirement, a plan must obtain certification of the following:

1. The amount of the loan payment,
2. The date of the loan payment,
3. That the loan payment was made by the employee,
4. That the loan being repaid is a qualified education loan used to pay qualified higher education expenses of the employee, spouse, or dependent, and
5. That the loan was incurred by the employee.

To be treated as “incurred by the employee,” the employee must have a legal obligation to repay the loan under its terms. The Notice explains that a cosigner may have a legal obligation to repay a loan, but a guarantor would not have such an obligation unless the primary borrower defaults. In any case, only the individual making QSLPs can receive a matching contribution.

The certification requirement can be satisfied through an affirmative certification by the employee of all five items listed above. Alternatively, certification of the required items of the payment’s amount, date, and the employee as payor (which must be certified annually) may be satisfied through independent verification by the employer (e.g., through payroll deduction) or passive confirmation by the employee. Passive certification is described in the Notice as: after being notified in writing by the employer of the loan payment amount and date and the assumption that the employee was the payor, the employee, after a reasonable period, does not dispute the information.

Certification that the loan repayment is for a qualified education loan and that the employee incurred the loan can only be done affirmatively by the employee. This employee certification can be done through a loan registration that requires such information before the first loan payment. This certification need not be required annually.

Therefore, the certification can be obtained through (i) affirmative certification with or without loan registration, (ii) loan registration and independent verification through payroll deduction, or (iii) loan registration and passive certification.

Reasonable procedures to implement a QSLP match feature. A plan may establish any reasonable administrative procedures to implement this plan provision, including whether the procedures promote compliance with legal requirements and if QSLP matches are effectively available to all eligible employees. The reasonableness of the procedures is determined on all relevant facts and circumstances. For example, according to the Notice, it is reasonable to establish a single deadline for claiming QSLP matching contributions for a plan year (the Notice gives the example of three months after the end of the plan year as reasonable) or multiple deadlines such as quarterly deadlines, taking into account whether such deadlines give employees a reasonable opportunity to collect and furnish the required information.

A plan is not required to have an employee submit verification in support of his or her certification that the qualified education loan is a QSLP. However, a plan may establish reasonable procedures that require independent verification that an employee has made payments on a qualified education loan. For example, a plan may require independent verification of a payment based on the transfer of loan information to the plan’s third-party service provider, but only if the plan permits an employee who is unable to transfer such loan information to verify the employee’s payment by other reasonable means, such as by submitting canceled checks or loan statements.

QSLP ADP testing. ADP testing for a plan that adopts a QSLP matching contribution feature may be conducted by applying a single ADP test or by applying a separate ADP test for those who receive QSLP matching contributions and a main ADP test for those who do not receive such contributions. The Notice describes two methods (Method 1 and Method 2) for plans that choose to apply two tests.

• Method 1 separately tests all employees who receive QSLP matches without regard to whether they make elective deferrals. In contrast to Method 2, the elective deferrals for those employees who receive QSLP matches are included in the separate ADP test.
• Method 2 separately tests all employees who receive QSLP matches without regard to whether they make elective deferrals. In contrast to Method 1, the elective deferrals for those employees who receive QSLP matches are included in the “main” ADP test as opposed to the separate test for the “QSLP group.”   

Miscellaneous issues. Among the key items in the “Miscellaneous Issues” portion of the Notice include:

• A discussion of SIMPLE IRAs.
• A statement that Code Section 409A regulations are to be issued in the future to address linked plans.
• Clarification on safe harbor plans providing that a QSLP matching contribution feature may be added mid-year, provided that the notice and election opportunity requirements of such mid-year changes are met.
• Specifically providing that QSLP matching contributions can be made at a different frequency than matching contributions on deferrals, but not less than annually. In addition, QSLP matching contributions need not be made on a rolling basis but can be made at the same time for all employees receiving such contributions.
• Guidelines on correction stating that if an employee’s certification of a QSLP is determined to be incorrect, a matching contribution based on that certification need not be corrected and will still be considered a QSLP matching contribution. The option not to make a correction does not apply to the plan’s operational failure(s) in administering the QSLP matching contribution feature, such as failing to require certification.

Take-aways for Plan Sponsors

Plan sponsors should note the following considerations regarding the adoption of a QSLP matching contributions feature under their retirement plans:

• This is an optional provision.
• Obtaining certification from employees for QSLPs will increase the plan’s administrative burden.
• This guidance is effective for plan years beginning after December 31, 2024; for plan years beginning prior to January 1, 2025, plan sponsors may rely on a good faith, reasonable interpretation of Section 110 of the SECURE Act 2.0.
• Further guidance in the form of regulations and a model amendment is expected.

If you have any questions regarding this IRS Notice 2024-63, or if you have questions regarding SECURE Act 2.0, please contact any member of Calfee's Employee Benefits and Executive Compensation practice group.