IRS Clears Path for Student Loan Repayment Tied to 401(k)

The Internal Revenue Service (IRS) on Aug. 17 okayed an employer's plan to tie 401(k) contributions to student loan repayment contributions, which will likely mollify employers interested in offering a student loan benefit in this way who are worried about complying with the law, reports Bloomberg Law . A 2017 American Student Assistance survey found 86 percent of young workers would stay with their employer for five years if they helped pay off their student loans. However, only 4 percent of employers offered a student loan repayment benefit as of 2017, according to the Society for Human Resource Management (SHRM). The program approved by the IRS would allow the employer to make a 401(k) contribution on a worker's behalf if the employee was making a student loan payment of at least 2 percent of their salary for a given pay period. The contribution would be made regardless of an employee's 401(k) contribution. "The individual for whom this is a real benefit is an employee who wasn't otherwise making 401(k) contributions," says McDermott Will & Emery partner Jeffrey Holdvogt. He notes it was uncertain before the ruling as to whether a pathway to providing a tax-free student loan repayment option through a 401(k) contribution existed, because tax code does not specifically permit employers to provide student loan repayment tax-free like it does for tuition assistance. "The ruling will be helpful for other companies because we have seen in recent months other employers tying 401(k) and student loan repayments together," says SHRM's Chatrane Birbal.