Employers ask IRS to broaden 401(k) student loan ruling to all qualified plans

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An employer organization is urging the IRS to broaden to all qualified plans a recent private letter ruling that appeared to clear the way for student loan benefits tied to a 401(k).

The ERISA Industry Committee — which lobbies on behalf of large employers on public policy around health, retirement and compensation — sent a letter to the IRS Wednesday in response to the agency’s recent private letter that allowed an unnamed employer’s plan to tie 401(k) contributions to student loan repayment contributions.

The private letter ruling isn’t precedential but was thought to allay concerns from employers interested in offering a tax-free student loan benefit through their 401(k) programs in a way that complies with the law.

Still, the ERISA Industry Committee asked the IRS to issue a revenue ruling that would broaden the reach of this guidance to enable all sponsors of 401(k) plans to make similar contributions.

“Many employers recognize the burden that student loan debt can have on their workers’ ability to save for retirement and would like to help these workers,” wrote Will Hansen, ERISA’s senior vice president for retirement policy. “While we believe current law allows employers to make contributions to their retirement plans on behalf of workers who repay student loan debt, the IRS has yet to clearly articulate that such contributions will not affect the tax-qualified status of an employer’s retirement plan.

“The recently issued PLR is a significant step in right direction, but [the ERISA Industry Committee] believes that more employers would be encouraged to implement retirement savings programs to assist individuals who are repaying student loans, similar to the one described in the PLR, if the IRS would issue a revenue ruling or other guidance of general applicability on this issue,” he said.

The committee’s membership is comprised of 100 large employers with at least 10,000 employees.

The ERISA Industry Committee says it “hopes the IRS will work with us to develop such a revenue ruling to make sure that it has the maximum impact in helping workers strapped with student loan debt save for their retirement.”

Though the IRS did not name the employer from the private letter, experts and lawyers suggest the employer is healthcare company Abbott, which recently announced student loan repayment options similar to the one in the IRS ruling. The company will give a 5% 401(k) match to its employees who contribute at least 2% of their salaries to student loan debt.

Experts suggest the IRS ruling will prompt a number of companies to follow in Abbott’s footsteps.

“Because student loan benefit programs are becoming an increasingly powerful way for employers to attract and retain key talent, the private letter ruling will very likely cause many employers, particularly employers with a young and educated workforce, to consider offering a student loan benefit as part of their retirement program,” says Jeffrey Holdvogt, an employee benefits partner with McDermott Will & Emery in Chicago.

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401(k) Student loans Student loan debt Benefit compliance Financial planning IRS
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