The Hassle(s) With Student Debt Matching

 Despite a lot of enthusiastic support for SECURE 2.0’s qualified student loan matching provision (QSLP match), employers don’t seem to be adopting that provision. Maybe there’s a reason — or two.

Recently only 12% of sponsors answering Callan’s annual DC survey said they had decided to offer employer-retirement account matches on qualified student loan payments, while 49% said no and 39% said they were still deciding — and that’s a survey that skews toward larger plans, generally viewed as early adopters.

Those tepid numbers have been validated in several reader polls conducted by the Plan Sponsor Council of America (PSCA). In 2023, only 2.2% of respondents said they offer or will offer the program during the year. In 2024, it was 4.7%. In the January 2025 poll covering 154 responses, the adoption rate was just 2.6%. Oh, and the “no” votes over the years were, shall we say, “emphatic”: 66.2%, 64% and 74.7% respectively, according to Pensions and Investments.

While I understand and appreciate the impact that college debt can have on retirement savings, I’ve never been a big fan of this particular provision (albeit voluntary) of SECURE 2.0. My ambivalence[i] was borne out of a sense that I saw no reason to set out college debt for special treatment. It is, after all, a financial obligation willingly undertaken — but then, so are things like a mortgage, a car payment, or even rent. And data suggests that those taking on the biggest burden are either from higher-income households, in pursuit of professions that will result in higher incomes (law, medicine), or both.

Despite those concerns, much was made of the need for this provision, and there was a LOT of enthusiasm in the industry and industry press both prior to, and when it was included in SECURE 2.0. 

So, what happened?

Well, any number of things, surely — but I figured it was going to stall out when I first saw IRS Notice 2024-63, the aptly titled “Guidance Under Section 110 of the SECURE 2.0 Act with Respect to Matching Contributions Made on Account of Qualified Student Loan Payments.” 

Don’t get me wrong — I feel like the drafters of that guidance bent over backwards to try and make it easy for those with student debt to take advantage of the option. But at the same time, when you consider the administrative work that would need to make this a reality…

So, first off, we’re not just talking about the employee’s debt — and while it has to be something THEY are legally obligated to pay, it could be theirs, their spouses, or for a dependent. Those payments have to be made within the calendar or plan year in which they occur, and they are — as one would expect — subject to the 402(g) limits ($23,500 in 2025). So presumably those payments are impeding THEIR savings availability. Presumably.

The guidance allows the plan sponsor to take the employee’s word for it — well, at least in the form of an annual certification from the employee[ii] with regard to the amount, payment date, and loan classification, etc. Most of this on annual basis (hassle #1 — see footnote 2 for a potential hassle #2), though technically a plan can impose a reasonable deadline or deadlines for a participant to claim the match (three months after the end of the plan year is deemed “reasonable”). As a practical matter, this means the match cannot be made on a payroll basis, which many employers prefer — so, hassle #3.

Oh, and while there are provisions for a separate ADP/ACP test, that remains a timing issue (hassle #4). What do you do if someone terminates after they’ve made loan repayments, but before you’ve made the match? That would be hassle #5. Oh, and can the employee — if the plan allows workers to designate employer contributions as Roth — request that these matches be Roth as well? Well, yes, as it turns out — but if the employer has already allowed for this option — well, they’re already familiar with that “hassle” (#6).

And then, for plan years starting after Dec. 31, 2023, employers can offer the QSLP match to any employee eligible to participate in the DC plan, even if the employee isn’t contributing to the plan. Which might be another hassle (#7, if you’ve lost count). See where I’m going?

Over the past couple of years there’s been a tendency (if not a trend) to leverage the success of the 401(k) to solve or ameliorate a number of larger financial concerns (emergency savings, retirement income, financial wellness). I get it. One of my favorite aspects of SECURE 2.0 was how many of its provisions were optional — and employers are, thankfully, free to construct their benefit programs in ways that allow them to attract and retain the workers they need in the ways that make sense, and to take advantage of the tax laws to do so.

That said, I’m not surprised that a plan sponsor who has sat down with their advisor and their recordkeeper might well consider implementing a student loan match program to be more “hassle” than it’s worth. 

I guess I’m most surprised that some are trying to make this work, regardless.

• Nevin E. Adams, JD

 

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[i] For a more comprehensive exposition, see What's So Special About College Debt?

[ii] One of the concerns I have heard from plan sponsors is what happens when somewhere down the road it turns out the information provided by the employee turns out to be wrong, and corrections are required? Well, as it turns out, Q&A E-4 provides that the plan is not required to make a correction. 

Perception Gaps

  A recent survey “revealed” a big disconnect between participants and plan sponsors — or did it?

The survey, conducted from mid-January to mid-February earlier this year by Voya, found that while 91% of sponsors thought participants were either very or somewhat prepared for retirement, “just” 69% of participants felt that way. A finding that I think it’s fair to say surprised — well, probably no one. 

Indeed, I’m sure there are any number of advisors out there who saw this as an opportunity to tell plan sponsors that while they may THINK the participants they serve and support are in good shape, their reality may be different. Particularly since this survey also found that advisors’ perspective was pretty much aligned with that of the participants surveyed.  

But could plan sponsors’ “read” of participant readiness really be so strong as to be so out of touch with participants’ perception? The authors of the report opined that the bull market might explain the level of plan sponsor positivity (which apparently is a consistent finding), though elsewhere in the report it cites that market volatility has been a factor of concern for participants — and so, one might suppose that, depending on when you responded to the survey, you might be inclined to feel better — or not — depending on the state of the market at the time (in fairness, the authors note that participant confidence has INCREASED since 2023, up from 63%). 

But as I thought about the data — or rather the conclusions drawn there — I noted that these are separate surveys of participants and plan sponsors — not just in time, but in…location. These are NOT the participants in the plans overseen by these specific plan sponsors, and these participant sentiments expressed are from participants not under the guidance/purview of the surveyed plan sponsors.[i] Perhaps if the plan sponsors associated with these particular participants’ plans were surveyed, they’d have a more muted confidence. Similarly, if the survey focused on participants in the plans overseen by this particular group of plan sponsors — well, they might actually be in a better situation, and thus more confident.

But even then, there’s a high likelihood that the vast majority of the participants surveyed have NEVER made even a single attempt to figure out their retirement needs/target,[ii] and so when asked about their level of confidence … well, it’s pretty likely to be an “uninformed” assessment. You can, of course, be confident — or lack confidence — for no good reason.  And who’s to say that the evaluation of the plan sponsors — who may have no specific sense of the retirement needs of their participant base — is any more credible?

Let’s face it — a macro view of the plan’s participant readiness (not to mention that some plan sponsors are more cognizant of such things than others) is almost certainly going to vary from the micro perspective of an individual. It’s not quite apples and oranges, but it’s at least comparable to assessing the quality of a bushel of apples compared to a couple at the bottom of the basket.

Beyond that, when you look inside the numbers of the Voya survey you see that just 17% of participants considered themselves VERY prepared — and only 27% of plan sponsors characterized their participant readiness as “very” prepared. So, while there’s a perception “gap,” it’s not as wide as the headlines proclaimed. 

All this by way of saying that while there is value[iii] in comparing (and contrasting) the perspectives of plan sponsors and participants from different places, at different times with different levels of understanding and evaluation…

Well, it’s a good idea to keep those differences in mind — particularly when trying to close those gaps in perception.

• Nevin E. Adams, JD     

 

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[i] I suppose some accidental overlap IS possible, but it seems unlikely.

[ii] If that question was asked, it wasn’t obvious from the results. Again, while confidence readings are easy to take, if you have no idea what you need (and perhaps a dated idea of what you have), I would argue it’s of little use in terms of gauging reality.

[iii] And, dare I say, click-throughs…

A ‘Better’ Than Averages Report

 There were some good headlines about 401(k)s last week — but the numbers underneath those “averages” were even better.

Those headlines — reporting on Fidelity’s Building Financial Futures: Q1 2025 report — noted that savings rates hit a record high in Q1, driven by a milestone employee contribution rate of 9.5%, and an employer contribution rate of 4.8% — the highest level to date in that survey. Those types of increases have previously been noted in surveys by the Plan Sponsor Council of America, but this one commented that the combined savings rate of 14.3% is the closest it’s ever been to Fidelity's suggested savings rate of 15%. 

That said, when you look inside those averages — Fidelity noted that Boomers[i] actually had a total savings rate of 17.2%, buoyed by a 12% employee savings rate, while Gen Xers had a 15.4% total savings rate (a 10.3% employee savings rate). Gen Z’s 7.3% employee savings rate and Millennials’ 8.8% rates — although robust for their life stages — actually dampened the “averages.”

Not as widely covered was that 17.4% of participants increased their contribution rate during the quarter (though 4.9% decreased it) — but here it was the younger generations leading the way, with 19.2% of Gen Zers and 18.1% of Millennials upping their “ante.” And while, on average, 61.9% had all their money invested in a target-date fund, that was 81% of Gen Z, but just 44.6% of Boomers. 

‘Average’ Bearings

All of those results, of course, are “averages” — though they are at least segmented by demographic groups that mitigate at least some of the distortions in the broad average.  

To their credit (and the positioning of Fidelity in their press release), most of the industry trade press focused on the increase in savings rate. Unfortunately, most of the “regular” press chose instead to headline the part about a drop in the average balances attributed to market volatility (3% in 401(k)s and 4% in 403(b)s). But while we’re on the subject of “averages,” while the “average” 401(k) balance[ii] at Fidelity was $127,100 — the “average” for Boomers was nearly twice that ($239,600).

Look, that “average 401(k) balance” includes a broad array of circumstances: participants who may (or may not) have a DB program, who are of all ages, who receive widely different levels of pay, who work for employers that provide varying levels of match, and who live (and may retire) in completely different parts of the country (and who experience very different costs of living). “Averages,” as “easy” and tempting as they are mathematically, can obscure — and even distort — those very significant differences. 

Which is why — when it comes to assessing reality — it’s better to look BEYOND the “averages.”

• Nevin E. Adams, JD

 

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[i] Generations as defined by Pew Research: Baby Boomers are individuals born between 1946 – 1964, Gen X are individuals born between 1965-1980, Millennials include individuals born between 1981 – 1996 and Gen Z includes individuals born between 1997 – 2012. 

[ii] That said, here are some points to keep in mind when trying to discern trends from “averages”: Why an Average 401(k) Balance Doesn't 'Mean' Much.

Between a Rock and a Hard Place

  Plan fiduciaries might well have gotten a case of severe whiplash last week.

I’m referring of course to the dual announcements from the Labor Department (a) rescinding its previous position on cryptocurrency in retirement plans and (b) indicating  that it in some fashion plans to review/change the current so-called ESG rule through a formal regulatory notice-and-comment period — presumably rather than defend the current version which had been challenged in court. That, and any day now it’s expected that the Administration will (similarly) soften, if not shift, its previous take on private equity investments in defined contribution plans.

Doubtless many are cheering these new developments; others, of course, will see this as either a danger, or a diminution of fiduciary responsibility. And some, surely, will like one, but not the other. 

Regardless, if you’re a plan fiduciary trying to figure out what is right and prudent to consider as plan investments — well, by any rational measure these shifts are abrupt, if not contradictory in effect if not purpose.   

Now, admittedly the world has changed since the Labor Department first staked out positions on these matters — markets have matured, definitions (notably ESG) have “evolved,” and while time inevitably allows us to review past experiences in a different light — we all know what has actually happened is that the Trump Administration looks at the world of retirement plans (and markets generally) differently than the Biden or Obama and even the Bush Administration(s). And even if the standards of conduct established by ERISA haven’t changed, the application of those standards apparently has. Yes, over the course of time and experience, as you would hope/expect, but more accurately over the course of change in administrations.

Worse, we live in a time when the plaintiffs’ bar — without a hint of irony — manage to find fault both with failing to add a stable value option, and the decision to add one rather than a money market alternative, to challenge as imprudent target-date funds that don’t mirror the (different) glidepaths of the rest of the “pack,” or to claim that following the legal terms of the plan document in forfeiture dispositions runs afoul of one’s fiduciary obligations. 

Add to that the growing industry chorus that a less-than-active consideration of mechanisms like in-plan retirement income constitutes a failure to consider “best interests” — and it’s no wonder that prudent plan fiduciaries feel themselves stranded in the middle of a “damned whether you do – or not” minefield.

The reality is that plan fiduciaries have always had to thread a needle of sorts; trying to act solely in the best interests of participants on matters in which they often lack the requisite expertise to make that evaluation — and in matters for which they bear personal responsibility. It’s why many do — and all arguably should — tap into the insights and experience of those who have that expertise. 

But in this “rock and a hard place” environment, you can’t fault plan fiduciaries for choosing to avoid or defer making big changes in plan design when the rules — and rule makers — change so abruptly.

• Nevin E. Adams, JD