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. 

The ‘Catch’ in the Saver’s Match

 Of all the promising provisions in the SECURE 2.0 Act of 2022, one of the most expensive (as the federal government does math, anyway) is likely to be one of the most challenging to implement.

It’s not effective till 2027, so there’s still some time to figure it out—but I’m talking about the new Saver’s Match—a significantly retooled and expanded version of the Saver’s Credit (which is more properly referred to, at least by the IRS, as “Retirement Savings Contributions Credit”). 

As with the precursor Saver’s Credit, the Saver’s Match is focused on increasing the savings of lower-income workers by—in addition to what an employer may match—making a matching contribution from the federal government. The match has a maximum value of $1,000 at a rate of $0.50 per dollar contributed by a worker, up to $2,000 annually. 

The Employee Benefit Research Institute (EBRI) has estimated (from tabulations of tax filers with W-2 (wage) income) that 69 million had incomes eligible for the Saver’s Match. That would, of course, be dependent on how many of those contributed to a qualified retirement plan (employment-based or IRA), and there EBRI has estimated[i] that it might apply to 21.9 million individuals—compared with the 5.7% of taxpayers who claimed the Saver’s Credit in 2021.

Perhaps the most significant enhancement is that—unlike the Saver’s Credit—you don’t have to owe taxes in order to be eligible. Instead, the Saver’s Match is a refundable tax credit—and that alone is expected to dramatically increase the number of individuals taking advantage.

In addition, while the Saver’s Credit simply offset taxes owed (and thus put no new money in the worker’s hands), the Saver’s Match will actually be deposited to a qualified retirement account—employment-based or IRA. Now, there are some challenges ahead on that front—not the least of which involve the reporting and depositing of the match—but we’ll come back to that.

Finally, the Saver’s Match itself is more generous,[ii] both in amounts and eligible income brackets than the Saver’s Credit—which bodes well for more people taking advantage.

The Challenges

You don’t have to think long about the mechanics involved to find yourself saying “how in the world are ‘they’ going to do that?” Think about the reporting of the contributions—the federal government looking to confirm an account where the match can be deposited—the recordkeeping of this new match (not to mention tracking it to the point of distribution)—oh, and what changes might occur in location/retirement accounts between the point the contributions are reported and when the funds from the federal government might be available.

Beyond those obvious obstacles, a recent report from Pew outlines some legal limitations worth keeping in mind:

Roth exclusion. While Roth contributions qualify for the match, the match money cannot be deposited into a Roth IRA or plan account (it will be considered a pre-tax traditional contribution that will be taxed as ordinary income when withdrawn). While this might miss a lot of employment-based plan savers, those in state-run IRAs will need an alternative account for this deposit.

Employment-based plans don’t have to accept the contributions. While this might be good news for recordkeepers (or plan sponsors) who don’t want to mess with these deposits, it would require the individual to establish an account somewhere to accept it (likely an IRA).

Claw-back provision. The original Saver’s Credit had an offset for distributions[iii]—and so does the Saver’s Match. Eligible individuals who take early distributions from their account that exceed the amount of the saver’s matching contribution could be subject to additional tax, and considering these individuals are lower income, that might well be the case.

ABLE account savings are not eligible—though they were for the Saver’s Credit.

Those aren’t exactly “catches”—they are simply conditions regarding the Saver’s Match that are known and must be part of the planning and education. In fact, the biggest challenge of all may well be education. Surveys—notably from the Transamerica Institute—have routinely found that less than half of those eligible for the Saver’s Credit are aware of it. On the other hand, SECURE 2.0 requires[iv] the U.S. Department of the Treasury to promote the Saver’s Match.

And, assuming it all comes together, it could mean millions—perhaps billions—in new retirement savings. And that would be the biggest “catch” of all.

Fingers crossed.

 - Nevin E. Adams, JD

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[i] EBRI has also cautioned that this might be a conservative estimate, as it was based on W-2 compensation data only, and did not contemplate additions due to new long-term part-time eligibility rules, or contributions to state-run IRAs, not to mention the expanded incentives for new plan formation and the impact of automatic enrollment adoption by those plans, per SECURE 2.0 provisions.   

[ii] Savers with modified AGIs below $20,500 ($41,000 for married filing jointly) will qualify for a 50% federal match on up to $2,000 in retirement savings—that is, a maximum match of $1,000. This income threshold will be adjusted for the cost of living for years after 2027. Those who earn up to $15,000 more than this threshold ($30,000 more for married couples filing jointly) will qualify for a reduced match.

[iii] The amount of any contribution eligible for the credit is reduced by distributions received by the taxpayer (or by the taxpayer’s spouse if the taxpayer files a joint return with the spouse) from any retirement plan or IRA to which eligible contributions can be made during the taxable year for which the credit is claimed, during the two taxable years prior to the year the credit is claimed, and during the period after the end of the taxable year for which the credit is claimed and prior to the due date for filing the taxpayer’s return for the year. Distributions that are rolled over to another retirement plan or IRA do not affect the credit.

[iv] It further requires that Treasury “shall, not later than July 1, 2026, provide a report to Congress summarizing anticipated promotion efforts,” including “a description of plans for the development and distribution of digital and print materials; the translation of such materials into the 10 most commonly spoken languages after English as determined by data from the U.S. Census Bureau, American Community Survey; and communicating the adverse consequences of early withdrawal from an applicable retirement savings vehicle to which a matching contribution has been paid.”

Closing the "Opportunity" Gap

There’s no one silver bullet likely to close the nation’s retirement plan coverage gap—but the target is pretty easy to spot.

As it turns out, the nation’s retirement plan access coverage gap is almost exclusively found among small businesses, and it’s not hard to imagine why. The failure rate for small businesses is daunting—and those who’ve managed to avoid that fate are doubtless focused on trying to avoid becoming a statistic. Under those circumstances one can well appreciate that offering benefits, much less RETIREMENT benefits, probably seems like a luxury for another time, if not another business.

A recent issue brief by Anqi Chen and Alicia Munnell of the Center for Retirement Research (CRR) at Boston College examined the issue, and drawing on previous research[i] cited the following three main barriers:

• uncertain revenues that make it hard for a firm to commit to a plan;
• employee preferences for wages and other benefits;[ii] and
• the cost associated with establishing and administering a plan (this latter included an assumption by some/many that employer contributions were required).

Indeed, surveys seeking to better understand this reluctance generally find two major obstacles: cost and complexity of administration. And that was before the recent economic downturn. 

Starter Up!

Enter the SECURE 2.0 Act of 2022 which, among its 90-some-odd retirement plan provisions, contains two that are squarely fixed on resolving those issues. The first of these is the so-called Starter K.  Basically, starting now—employers that have never had a plan can set up a “starter” 401(k) or 403(b) plan. There is no required employer contribution, though employees are automatically enrolled at 3% of pay (they can opt out). While this an actual 401(k)/403(b) plan, it looks more like an IRA, more specifically the type that have been established by a number of states. The limits for employee contributions start at $6,000, indexed to inflation—and there is an additional opportunity for a catch-up contribution of $1,000 for those individuals over 50. However, unlike the traditional 401(k)/403(b), there is no nondiscrimination or top-heavy testing requirements. 

All in all, it’s a straightforward, simple 401(k) design that removes the complexity (and cost) concerns that have held many small businesses back. Conservative estimates prepared for the American Retirement Association suggest that this could provide 19 million working Americans access to a workplace retirement plan that didn’t have that opportunity previously.

Credits ‘Worthy’

But perhaps the biggest incentive found in SECURE 2.0 is the greatly expanded tax credit for new plans.  Under current law, employers with less than 100 employees that adopt a new retirement plan can qualify for an annual tax credit for up to three years equal to the lesser of (1) 50% of the administrative cost of establishing the plan, or (2) $5,000. But, effective for 2023, SECURE Act 2.0 increases that percentage from 50% to 100% for employers with 50 or fewer employees (it remains at 50% for those with 51-100 employees). So, it covers 100% the cost of operating the plan, up to $5,000 (which, I’m told with some confidence is more than the cost of running those size plans). 

More than that, it also establishes a generous new tax credit for contributions made by small employers to a newly established retirement plan (other than a defined benefit plan)—a tax credit that is a set percentage of the amount contributed by the employer for employees up to a per-employee cap of $1,000 (though contributions to those that make $100,000 or more are not taken into account). Better still, that set percentage is 100% for the year the plan is established AND the following year, 75% for the third year, 50% for the fourth year, 25% for the fifth year (0% thereafter). The full amount of the new tax credit would be available to employers with 50 or fewer employees but phases out for employers with 51 to 100 employees. 

MEP ‘Step’

Oh—and for fans of multiple employer plans (MEPs), the start-up credits are available for three years to employers that join an existing MEP, regardless of how long the plan has been in existence (the MEP rule is retroactively effective for taxable years beginning after Dec. 31, 2019).

The reality is that even today more than 30% of all private-sector American workers still lack access to workplace retirement plans and thus lack an equitable opportunity to achieve a comfortable retirement.   Further, nearly 60% of workers in the lowest income classes still lack access to workplace plans. We talk about a “coverage” gap, but it’s really an opportunity gap.     

The challenges confronting small businesses are no less—and arguably even larger now—than they’ve ever been. But, amidst all the economic uncertainty—and with the importance of worker attraction and retention more critical than ever—SECURE 2.0 offers opportunity—not only to strengthen and solidify those workplace bonds—but in the process to help give American workers the opportunity to better prepare for a secure retirement.

- Nevin E. Adams, JD 

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[i] Specifically by the Employee Benefit Research Institute (EBRI), the Pew Charitable Trusts, and the Transamerica Institute.

[ii] Incredibly, the EBRI research, which admittedly went back to 2003, cited as a primary rationale that employees hadn’t REQUESTED the benefit.