Many Americans face mounting student loan debt and often have to choose repaying the loans over making contributions to their retirement plan to save for the future. Legislation introduced on December 18th could help employees afford to do both.
With the Retirement Parity for Student Loans Act, employees would continue to repay their student loans but also be eligible to receive an employer matching contribution into their retirement plan. The law would allow employer matching contributions based on the amount of the loan repayment, as if the repayment were a salary reduction contribution into their retirement plan, helping participants build their retirement savings.
The Fine Print
If the bill passes, several guidelines would apply to employers and plan participants regarding employer matching contributions on student loan repayments :
- Would be available to 401(k), 403(b), and SIMPLE retirement plans
- Because it’s a voluntary benefit; employers can decide whether to offer it
- If offered, must be available to all eligible participants in the plan; cannot be made to ineligible participants
- Applies to higher education loan repayments, and employers could require employees to provide proof of payments
- The employer match rate must be the same for student loan repayments and salary reduction contributions
- Annual maximum contributions limits would apply ($19,000 for 2019)
- 401(k) plans would continue to qualify as safe harbor plans
Employees stand to gain by having the ability to continue reducing their student loan debt while building up their savings for retirement. If the bill passes, it would take effect for plan years starting in 2019. View additional details here.