Employers now have a new benefit option in their toolbelt: The Qualified Student Loan Payment (QSLP) match. But is it worth implementing? Before diving into the specific legal requirements for a QSLP match program, this article provides an overview of recent IRS guidance, and the circumstances in which participants in certain types of plans might benefit from this new option.

QSLP Match Origin and 2024 IRS Guidance

Section 110 of the SECURE 2.0 Act of 2022 permitted employers with 401(k) plans, 403(b) plans, governmental 457(b) plans, and SIMPLE IRA plans to provide matching contributions based on qualified student loan payments for plan years beginning after December 31, 2023.

On August 19, 2024, the Internal Revenue Service issued Notice 2024-63, providing guidance for plan sponsors that offer (or wish to offer) a QSLP match program. The Notice offers flexibility for employers to integrate QSLP match features into their retirement plans and addresses various plan administration requirements and compliance logistics.

Practical Insights: Is Implementation Worth It?

Helping Plans with Low Participation and Deferral Rates

For employers with a significant number of employees contributing little or nothing to their retirement plan accounts due to the financial burden of student loans, the QSLP match could be a game changer. This feature encourages participation by offering a tangible benefit, while enhancing retirement readiness and engagement.

For employers with a high percentage of employees already maximizing their retirement deferrals, adding a QSLP match will not enhance overall employee benefits, but may be of value to some employees.

Attracting New Employees and Retaining Employees in High Student Debt Industries

In industries with high student debt burdens (such as the medical or higher education fields), the QSLP match can be a unique selling point in recruitment and retention efforts. Employees in these industries may be more inclined to participate in a retirement plan if they know their student loan payments will qualify them for matching contributions. Offering this benefit can distinguish an employer as one that supports employee financial well-being beyond traditional retirement savings, which can appeal to early-career professionals and those prioritizing student debt repayment.     

Understanding Notice 2024-63 – QSLP Match Program Requirements and Plan Administration

Notice 2024-63 lays out detailed QSLP match program requirements and addresses various plan-administration issues, including:

• Eligible Student Loans: What constitutes a QSLP?
• Eligible Employee Requirements: Which employees are eligible to receive a QSLP match?
• Certification: Content, form, and frequency rules for QSLP certification.
• QSLP Dollar Limits: Annual limits based on plan type.
• Frequency of QSLP Matching Contributions: Flexibility in contribution timing.
• Nondiscrimination Testing Relief: ADP testing options.
• Reasonable Procedures: Guidelines for implementing and administering QSLP matches.
• Compliance with Other Plan Requirements: Impact on 403(b), 457(b), and SIMPLE IRA plans.
• Effective Date and Reliance: Applicability and future regulations.

Eligible Student Loans – What is a QSLP?

A QSLP is a payment:

1. made by an employee during a plan year in repayment of a “qualified education loan”¹ incurred by the employee to pay for “qualified higher education expenses”² of the employee, the employee’s spouse, or the employee’s dependent;
2. not exceeding the annual QSLP limit when aggregated with other QSLP payments for the plan year; and
3. certified by the employee in accordance with the certification requirements in Internal Revenue Code Section 401(m)(4)(D)(ii).

Only loan payments that were made during the plan year are eligible to be counted for purposes of the employee’s QSLP match for that plan year.

Additionally, the employee who makes a payment on the qualified education loan must have a legal obligation to make the loan payment under the terms of the loan. For loan guarantors, a legal obligation exists only if the primary borrower defaults on the loan. For co-signed loans, even if both the employee and the dependent are legally obligated to make payments, QSLP matches are only available to the individual who actually makes the loan payments.

Eligible Employees – Who May Receive a QSLP Match?

If adopted, a QSLP match must be effectively available to all eligible employees. Plans must not exclude employees from QSLP matches if they are eligible for elective deferral matches, and vice versa. In other words, elective deferral match eligibility must align with QSLP match eligibility. Employees who are eligible for the 401(k) match must be eligible for QSLP match.

Plans cannot place eligibility limits on QSLP matches that do not apply to elective deferral matches. For example, a plan could not require that employees remain employed through the QSLP match allocation date or through the last day of the plan year for the QSLP match but not impose those conditions for elective deferral matches.

For plans with collectively bargained and non-collectively bargained employees, due to the testing disaggregation rules under the Code, plans may include a QSLP match feature for only non-collectively bargained employees without violating the QSLP match eligibility requirements.

Certification – Content, Form, and Frequency Requirements

A loan payment is a QSLP only if the Code Section 401(m)(4)(D)(ii) certification requirements are satisfied with respect to that payment.

Content

To satisfy the certification requirements, employees must provide the plan (or the plan’s delegate, e.g., service provider) the following information:

Form – Active/Passive Certification by Employee, Independent Employer Verification

Items 1-3 may be satisfied through affirmative certification or passive certification by the employee or independent verification by the employer. Items 4-5 require affirmative certification by the employee.

• Affirmative Certification by Employee: Affirmative certification involves the employee actively providing the information directly to the plan. For example, an online form for loan payment details and qualification. The affirmative certification requirement for items 4 and 5 may be satisfied by a one-time loan registration where the employee provides the plan loan information regarding items 4 and 5 before the first loan payment is made for which the employee claims a QSLP match, and the employer requires annual certification for items 1-3 annually thereafter.

• Passive Certification by Employee: Passive certification involves the plan receiving lender information and seeking employee confirmation. The Notice outlines the following process:
  
  • Lender Provides Plan Loan Information: The plan receives information from the lender about the amount and date of the loan payment. (Lenders do not provide information regarding the source of a payment, i.e., whether the employee made the payment).
  • Plan Notifies Employee: Unless the plan has actual knowledge to the contrary, the plan then notifies the employee of the information received, including an assumption that the employee was the payor.
  • Correction Period: The employee is given a “reasonable period” to review the information and correct any errors. If the employee does not correct the information within this period, the certification is treated as satisfied. The employer is not obligated to inquire about whether the employee made the payment. The Notice does not specify what is considered a reasonable period for passive certification—giving employers flexibility to determine the timeframe based on their plan’s needs. Employers should set a period that allows employees enough time to review and correct information, balancing efficiency with accuracy. A 30-day correction period is considered reasonable in many other plan administration contexts. The chosen period should be tailored to the plan’s specific needs and available communication channels.

• Independent Employer Verification: Independent employer verification involves the plan verifying loan information without the employee’s input or feedback. For example, payroll deduction of qualified education loan payments serves as independent employer verification (satisfying items 1-3). Plans may (but are not required to) ask for supporting documentation for QSLP certifications. Plans implementing verification should ensure the process is applied consistently and does not create undue burdens that could discourage participation.

• Design Flexibility: Plans have flexibility in designing certification procedures and may use a combination of certification methods, provided they are reasonable and promote compliance with QSLP match requirements. For instance, to comply with the requirement that a QSLP match be “effectively available” to all eligible employees, a plan cannot establish independent verification or passive certification procedures that are not reasonably available to some employees. The procedure may have to permit alternative methods of satisfying certification. For example, a plan may require independent verification via loan data transfer to a third-party service provider, but it must allow for alternative verification methods (e.g., canceled checks or loan statements) for employees who are unable to transfer the data. 

• Incorrect Certifications: If an employee’s certification of a QSLP is determined to be incorrect, a match based on that certification does not require correction. However, it may be corrected provided that all QSLP matches made under similar circumstances are also corrected. An example of when a certification can later be determined incorrect is when a loan is forgiven. If the employer decides to correct the match in that case, then it must do the same for all QSLP matches based on loans that are later forgiven. Unlike the option to leave incorrect certifications uncorrected, QSLP match operational failures (e.g., failing to satisfy the certification requirements, adhere to the QSLP dollar limits, or include an eligible employee in the program) must be corrected.

Frequency of Certification

A plan may require a separate certification for each loan payment or permit an annual certification for all loan payments intended to qualify as a QSLP for a plan year.

QSLP Dollar Limits

An employee’s maximum QSLP for a plan year depends on the type of retirement plan that is involved:

• 401(k) and 403(b) Plans: The aggregate QSLP for a plan year cannot exceed the lesser of the Code Section 402(g) limitation or the employee’s compensation, reduced by the employee’s elective deferrals for the plan year.

• Governmental 457(b) Plans: The aggregate QSLP for a plan year is determined in the same manner applicable to 401(k) plans³ but using salary deferrals instead of elective deferrals.

• SIMPLE IRA Plans: The aggregate QSLP for a plan year cannot exceed the applicable dollar amount under Code Section 408(p)(2)(E), reduced by other elective employer contributions for the plan year.

Frequency of QSLP Matching Contributions

QSLP matches can be contributed at a different frequency than regular elective deferral matches, provided they are made at least annually. For example, the QSLP match could be made quarterly or annually, while the regular match is made each pay period.

Nondiscrimination Testing Relief

The Notice provides detailed guidance on how plans with QSLP match features can comply with the Actual Deferral Percentage (ADP) test under Code Section 401(k)(3). The guidance offers flexibility when integrating QSLP matches without disrupting existing ADP testing. The guidance offers two (2) testing options: a single ADP test and separate ADP tests.

Single ADP Test: Conduct a single ADP test for all employees, regardless of whether the employee received a QSLP match.

Separate ADP Tests: Conduct distinct tests for employees receiving QSLP matches and those who do not (i.e., a separate QSLP match test and a “main” ADP test). There are two methods provided for this option:

Method 1:

• Separate ADP Test: Includes all employees who receive QSLP matches.
• Elective Deferrals: The elective deferrals of employees who receive QSLP matches are included in this separate ADP test and are excluded from the main ADP test.
• Main ADP Test: Applies only to employees who do not receive QSLP matches.
• Best Suited For: Method 1 is particularly beneficial if non-highly compensated employees (“NHCEs”) who receive QSLP matches have higher deferral percentages than highly compensated employees (“HCEs”).

Method 2:

• Separate ADP Test: Includes all employees who receive QSLP matches.
• Elective Deferrals: The elective deferrals of employees who receive QSLP matches are included in the main ADP test and excluded from the separate ADP test.
• Main ADP Test: Applies to both employees who do not receive QSLP matches and those who do, incorporating the elective deferrals of all employees.
• Best Suited For: Method 2 is particularly beneficial if HCEs who receive QSLP matches have higher deferral percentages than NHCEs.

Reasonable Procedures

Plans may establish any reasonable administrative procedures to implement QSLP match features. Whether procedures are reasonable is based on all relevant facts and circumstances, including whether the procedures promote compliance with QSLP match requirements. The Notice provides helpful guidance on implementing reasonable procedures for QSLP match features:

• Nondiscrimination in Loan Types: Plans may not limit QSLP matches to only certain qualified education loans (e.g., loans for an employee’s own education), particular degree programs, or particular schools.

• Safe Harbor Plan Additions: QSLP match features may be added as a mid-year change to a safe harbor plan if the notice and election opportunity conditions in IRS Notice 2016-16 are satisfied.

• Claims Deadlines: Plans may establish reasonable deadlines for QSLP match submissions, either as a single annual deadline or multiple deadlines throughout the year. Reasonableness depends on factors such as allowing sufficient time for employees to gather and submit documentation. For example, a plan could set a March 31 deadline for submitting the previous year’s QSLP match claims. However, to avoid potential Code Section 4979 excise taxes on excess contributions, plans should consider setting deadlines within 2.5 months after the plan year end or implementing an eligible automatic contribution arrangement (or “EACA”) to extend the correction period to the end of the first six months of the following plan year.  

Compliance with Other Plan Requirements

• 403(b) Plans: The inclusion of a QSLP match feature does not affect the universal availability requirement applicable to 403(b) plans. All employees must have the opportunity to make elective deferrals regardless of whether the plan includes a QSLP match.

• Governmental 457(b) Plans: A governmental 457(b) plan (or a 401(a) or 403(b) plan maintained by the same governmental employer), can include a QSLP match feature without losing its status as an eligible deferred compensation plan.

• SIMPLE IRA Plans: The QSLP match feature does not disqualify a SIMPLE IRA plan from being a qualified salary reduction agreement. QSLP matches are treated as elective employer contributions under the plan.

Effective Date and Reliance

The Notice applies to plan years beginning after December 31, 2024. Until proposed regulations are issued, plan sponsors may rely on a good faith, reasonable interpretation of Section 110 of the SECURE Act when implementing QSLP match features. IRS expects to issue proposed regulations providing further guidance on QSLP match features in the future.

Recommended Practices for Employers Considering a QSLP Match

• Clear Communication: Clearly communicate the rules and procedures related to QSLP matches to all eligible employees to ensure understanding and to encourage participation.

• Regular Updates: Continuously review and update certification and verification processes to align with any changes in regulations or workforce needs.

• Efficient Certification Process: Develop a streamlined certification process that maintains program integrity without overburdening employees or administrative staff.

• Demographic Review: Regularly assess the workforce demographics to ensure the program is meeting the evolving needs of employees.

• Consult Experts: Engage legal and benefits advisors to ensure compliance with applicable regulations when implementing this feature.

Conclusion

The QSLP match option provides a promising new benefit for retirement plan sponsors to consider. The decision to implement should be evaluated carefully based on workforce demographics, current deferral rates, and the potential for attracting and retaining talent in high student-debt industries.