In a recent statement from the IRS, an unnamed employer received access through a private letter ruling to defer 401k matching dollars to student loans through a Section 127 plan tax-free. Similar to the private letter ruling Abbott Labs received in 2018 to count student loan payments as elective deferrals, this ruling also just applies to this singular employer. In Abbott Labs’ case, their request became an option for others this year in 2024, 6 years later with Secure Act 2.0.
This news comes during a time, where Secure Act 2.0 hasn’t gained any traction and employers have continued to offer Student Loan Repayment directly to employees’ loans each month tax-free. Similarly to Secure Act 2.0, this ruling looks to add unnecessary complexity to Student Loan Repayment. Requiring legal 401k Erisa amendments and causing confusion amongst employers.
Direct Student Loan Repayment has been utilized by thousands employers since 2015, driving home on key HR metrics while helping organizations attract and retain talent. Seeing as high as 30% participation in some cases, the benefit has also driven down individual’s outstanding student debt immensely, and remains the most effective way to offer a program today.
- Sources: https://www.irs.gov/pub/irs-wd/202434006.pdf (IRS, August 2024)