One of the provisions of Secure 2.0 allows Plan Sponsors to match Qualified Student Loan Payments (QSLPs). Plan Sponsors often seek to maximize contributions that owners and other key personnel can make to their plans, while minimizing total employer costs. So why would they ever consider adding matching to their plans?

Many employers are frustrated by the lack of participation by their Non-Highly Compensated Employees (NHCEs), which in turn can limit the total contributions made to the accounts of Highly Compensated Employees (HCEs). A common solution is to turn to one of the many Safe Harbor options to allow maximization of deferrals, but that does not maximize employer contributions to their most valued employees. Most employers would prefer not to reward short term employees, so the vesting can also be a big issue as well.

Studies show that 66% of graduates from public colleges and 82% of graduates of for-profit colleges leave with often significant student loan debt. The weight of student loans can prevent your highly valuable new employees from fully deferring into your 401(k) plan, which leads to the challenges just described. Secure 2.0 offers a new solution.

This new provision made available by Secure 2.0 will allow employers to match QSLPs, which are frequently made by newer, lower income employees. The matching contributions provided under the provision do not need to be 100% vested, which might help with testing and still require employees to stay with the company up to 6 years in order to take all of the matching funds with them. A new discrimination testing method allows employers to maximize this new Secure 2.0 provision.

Conversely, if it is mostly your HCEs that are making student loan payments, there is a second testing method that can have a similar effect. This will, once again, get more contributions into the accounts of your HCEs.

It may sound complicated, but that’s why we’re here – to help you figure it out.

Our next post will cover the challenges of matching QSLPs, so you may get the full picture.

Let Alliance Benefit Group show you how it could work for your company by contacting your Client Relationship Manager or ABG Sales Rep.