Retirement Savings Plans,For Individuals,For Plan Sponsors,Custom

Retirement Legislation to Assist with Student Loans

July 2, 2019

On May 13, 2019, Senators Ron Wyden (D-OR), Maria Cantwell (D-WA), Ben Cardin (D-MD), Sheldon Whitehouse (D-RI), Maggie Hassan (D-NH), and Sherrod Brown (D-OH) re-introduced the Retirement Parity for Student Loans Act.

The legislation would provide rules to facilitate governmental 457(b), 401(k), and 403(b) plan employers’ ability to provide a match for employees making student loan repayments (including, in the case of a 457(b) plan, when the matching contribution is made to a 401(a) plan). The benefit to this is two-fold: providing a vehicle to start building retirement savings without delay, and as a tool to attract and retain talent.

The idea behind this legislation is to help employees who are repaying higher education student loan debt to start saving for their retirement at a time when they may not be able to afford to make contributions into their plan. The cost of delaying these deferrals can be significant. Allowing the employer to match student loan repayments as if they were employee deferrals provides employees with the ability to begin saving at a time when they may not be able to do so.

How would it work?

This is a voluntary benefit for employers to offer. The employee would need to certify to the employer that he or she made a payment to repay a qualifying higher education loan incurred for the employee. The employer would then make a matching contribution to the retirement plan based on the normal matching formula, as if the student loan payment had been contributed as a deferral.

While this plan design is theoretically available under current law, the bill helps to provide certainty and address technical issues that might prevent adoption by employers. Upon passage, the Department of the Treasury would likely issue guidelines to help employers and employees understand which loan repayments would be eligible to be matched and address other implementation questions.

What happens if the employee is able to defer some money to their plan?

In cases where an employee is making eligible student loan repayments and is able to defer contributions into their plan, they can still take advantage of the program to the extent that total elective deferrals and matched student loan payments do not exceed the indexed annual limit ($19,000 for 2019).

ICMA-RC will continue to monitor this legislation and will consider ways to help you implement and manage this feature.

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