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Student Loan Borrowers Helped With 401(k) Match
February 6, 2024
Student loan borrowers could get some welcome relief from the SECURE Act 2.0, a policy where employers can match their employees’ student loan repayments as 401(k) contributions.
Beginning in 2024, when someone makes a student loan payment, their employer can contribute that same amount to the employee’s retirement plan under Section 110 of the SECURE Act 2.0. Section 110 is effective for contributions made for plan years beginning after Dec. 31, 2023.
The policy name stands for Setting Every Community Up for Retirement Enhancement. It “permits an employer to make matching contributions under a 401(k) plan, 403(b) plan, or SIMPLE IRA concerning ‘qualified student loan payments,’” which is defined as “any indebtedness incurred by the employee solely to pay qualified higher education expenses.”
Signed into law in 2022, the contribution option of the SECURE Act 2.0 comes at a time when many Americans are burdened with student loan debt. Some employees may be unable to afford a retirement contribution if they’re overburdened with monthly student debt payments.
The benefit is optional for all employers to participate in. However, if an employer offers it, the loan payments will be treated using the same formula as contributions from your paycheck. For example, if your employer’s policy matches your 401(k) paycheck contribution dollar-for-dollar up to the first 5% of your salary, the same applies to the loan payment match.
Federal student loan payments are at the top of many borrowers’ minds since repayment resumed last October after a pandemic-induced pause of three and a half years. Some workers have prioritized paying down loans over contributing to retirement plans as their debt continues to balloon due to rising interest rates.
The SAVE Plan is a separate option generated by the government to assist student loan borrowers. It effectively halves the minimum monthly required payment on federal loans once enrolled.
Abbott, Verizon, and Chipotle have already started offering 401(k) matching for employees making student loan payments.
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