The Chamber recently passed HR 2954 Ensuring a Strong Retirement Law, known as the Secure 2.0 Act, which has overwhelming bipartisan support, with a vote of 414 in favor and only 5 against. The Act includes a great benefit for those who are working to pay off their student loan debt but have limited resources to invest for retirement.

The average amount of student loan debt per borrower in 2021 was $38,792, while the total amount of outstanding student loans was estimated at $1.58 trillion. While many would expect the most recent college graduates to have the most student loan debt, the Federal Student Aid Portfolio It shows that the largest federal student loan balances are held by adults ages 35-49, with student loan balances of $622 billion or 40% of total outstanding student loan debt. The ability of this age group to start and grow retirement savings is imperative to a successful retirement. Congress’s concern that adults are focused on paying off student loans rather than investing in retirement savings is highlighted in the House proposal, Section 111. This might be the best option Congress is willing to offer as alternative to student debt forgiveness.

The House proposal seeks to expand the definition of an employer matching retirement contribution to include employer contributions made on behalf of an employee who makes payments on qualified student loans. Therefore, even if an employee is only able to make their student loan payments, they would be allowed to receive an employer matching contribution to the employer’s 401(k), 403(b) plan, or SIMPLE IRA.

For example, let’s say Adam is an eligible participant in his employer’s 401(k) plan. Adam earns $1,500 per week, or an annual salary of $78,000 per year. The employer will match contributions up to 4% of Adam’s salary. Therefore, before the proposal, Adam would have to contribute $60 (1500 x 4%) per week to maximize his employer’s contribution of $60 per week. If Adam were able to participate, Adam could save $6,240 over one year ($120 x 52 weeks) or $62,400 over a 10-year period before any interest.

Unfortunately, Adam stopped making 401(k) contributions. Instead, Adam made payments of $60 a week on student loans. Under the House proposal, the employer can treat the $60 per week payment as an employee contribution to Adam’s 401(k) plan, resulting in an employer match. The employer matching contribution of $60 per week would result in additional retirement savings for Adam of $3,120 per year, or $31,200 over a 10-year period before any interest. This change in the definition of what can be considered when calculating employer contributions could have a positive impact for many adults burdened by student loan payments.

Do I have a qualified student loan?

The definition of a qualified student loan is linked to the existing requirements used to determine the deductibility of student loan interest. A loan will be considered a qualified educational loan if the taxpayer incurred it solely to pay qualified higher education expenses, and spending on education is:

1. Made on behalf of the taxpayer, the taxpayer’s spouse, or any dependent of the taxpayer at the time the debt was incurred,

2. Paid within a reasonable period of time before or after the debt is incurred, and

3. Attributable to a student who is enrolled in a degree or certificate program and who carries at least one-half of the normal full-time workload for the student course the student is pursuing.

Qualified education expenses include the cost of attendance. A student’s cost of attendance generally includes tuition and fees (net of certain amounts, including scholarships) and an allowance for room and board, books, supplies, transportation, and miscellaneous student expenses.

How will my employer know if I am making qualified student loan payments?

Under the House proposal, an employer can rely on an employee’s certification to ensure that payments have been made in connection with a qualified student loan.

Will employers have different benefits for cash contributions compared to qualified student loan payments?

An employer contribution made on behalf of an employee making a qualified student loan payment will only be considered eligible for an employer match if:

1. The plan provides that matching contributions related to qualified student loan payments are treated the same as salary reduction contributions;

2. All employees who are eligible to receive matching contributions under the employer’s initial plan are also eligible to receive a matching contribution related to the repayment of qualified student loans; and

3. Vesting is the same for employees who have salary reduction contributions or make qualified student loan payments.

Strong bipartisan support for this bill is also expected in the Senate. While the inclusion of Section 111 is exciting, it is important to note that it is a voluntary benefit that employers have the option to provide but are not required to provide. The status of the bill should be carefully monitored, and if it passes, a discussion with your employer may be helpful. If employer matching ability on qualified student loan payments is enacted, it would be effective for contributions made for tax years beginning after December 31, 2022.