In Private Letter Ruling 201833012 (“PLR”), the IRS addressed an employer’s proposal to amend its 401(k) plan to include a student loan benefit program (the “Benefit Program”). Under the Benefit Program, the employer could make non-elective contributions to a 401(k) plan intended to match the participant’s student loan repayments. In effect, the employer makes 401(k) matching contributions based on student loan repayments in lieu of 401(k) deferrals. In the PLR, the IRS determined that the Benefit Program, as proposed, was permissible, potentially providing the opportunity for other employers to implement similar programs.
Under the Benefit Program, an employee who is making student loan repayments equal to 2% of their annual salary could voluntarily enroll in the Benefit Program. If an employee participates in the Benefit Program, the employee would not be eligible to receive regular matching 401(k) contributions from the employer as long as he or she participates in the Benefit Program. Instead, the employer would make a non-elective contribution to the plan equal to 5% of the employee’s eligible compensation for the pay period the employee is enrolled in the Benefit Program. However, an employee participating in the Benefit Program would still be eligible to make elective contributions to the 401(k) plan.
It is important to note that the PLR can be relied on only by the taxpayer requesting the letter and is limited to the specific program described in the PLR. It is hoped that the IRS will consider issuing regulations or guidance that can be relied upon generally by all 401(k) plans. Thus, employers should consult a tax professional to ensure compliance with all IRS qualifications before attempting to implement a similar program.