A recently issued IRS private letter ruling gives new hope to former students working to pay off their student loan debts. Student loan debts have been on a rapid rise, nearly tripling over the last decade. Former students are looking for help from whatever corner possible, and may now have a tangible solution by collaborating with their employer.
Private Letter Ruling 201833012 affirmed that employers can substitute qualifying student loan repayments made by employees in place of employee matching contributions for company 401(k) plans. Under the typical 401(k) structure, employees must contribute a portion of their earnings to their 401(k) in order for the employer to contribute an employer match. This alternative system under the letter ruling gives employees the option to both pay off their student loans and receive retirement benefits at the same time. This change in employer match should have a net zero impact to the employer’s bottom line.
Employers who wish to provide the benefits described above will need to amend their existing 401(k) plan documents to account for the change. Having the ability to assist employees in paying off their student loans can make a potential employer very attractive in the competitive hiring marketplace.