Hidden among the 100 or so updates and opportunities in SECURE Act 2.0, there's a provision that makes it possible for employers to match student loan payments with contributions to
One major hurdle to its implementation is awareness; both HR pros and employees alike are still parsing through all the SECURE Act's provisions, and are just starting to wake up to the potential of this particular benefit that sits squarely at the cross-section of student loan assistance and retirement savings. Once it gets up and running, the impact will be tremendous. In any given month,
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Even once the benefits are clear though, there's still some complexity to navigate. I'll take some of the most common misconceptions I hear and handle them one by one so you can confidently take advantage of this up-and-coming benefit.
Misconception 1: The match goes towards an employee's student loans
This is by far the most common (and understandable) point of confusion I've encountered about this new benefit. Because student loans are involved, it's easy to assume that matching dollars go to student loans, but the reality is much more attractive: The provision makes it possible to match a student loan payment with a 401(k) contribution only. This allows employees to both pay down their debt and to take advantage of a match, and further their retirement savings goals.
Here's an example: Olivia is an employee who can't afford to contribute to her retirement plan even though her employer matches her contributions. Those savings dollars are going toward paying down her student loans. If her employer decides to offer student loan matching under SECURE 2.0, she can get the $4,800 in student loan payments she's making per year added to her retirement plan (as long as it doesn't exceed the matching limit). It's a win-win for both Oliva and her employer: She doesn't fall behind on investing for her future, and her employer is able to count her as a participant in their retirement plan.
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Misconception 2: Employees can't combine student loan matching and retirement matching
Part of the beauty of this provision is that it allows employees some flexibility with how much they contribute to both their student debt, and to retirement savings — it doesn't lock them into picking only one option. Here is another example: Bowen's employer offers a 3% match on retirement contributions. Because of his student loan payments, Bowen is only contributing 2% of his salary toward his retirement instead of maximizing his employer match. Under SECURE 2.0 rules, he can now combine his student loan payments and his retirement contributions to reach the annual maximum set by his employer.
Misconception 3: It's hard to implement
This is a brand new benefit, and it's understandable that there are a lot of questions and concerns about how time consuming and difficult this will be for HR teams to implement. The good news is that it doesn't have to be complicated. Trusted tech solutions and recordkeepers are already on top of enrollment and implementation, and there are tools that can help you enroll your employees, gather verification or self-certification, and match up the data so you don't have to do it on your own.
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It's also worth noting thatSECURE 2.0 specifies that the set up for matching student loan payments should be the same as matching retirement contributions. So if you offer a 4% match on retirement contributions, for example, you'd also offer a 4% match on qualifying student loan payments. The tax advantages for both types of matching are mirrored as well — all of which means it's likely a simple update to your retirement plan design.
This is a tremendously exciting new benefit that's a win for employees and employers alike. With student loan payments now due for the first time in over three years, it's a perfect time to take advantage of the new benefit to protect retirement plan participation and boost employee's financial health.
