IRS Authorizes 401(k) Plan Contributions For Student Loan Repayments

In a recent Private Letter Ruling (PLR), the IRS authorized making 401(k) plan contributions to participants who repay their student loans instead of contributing to the plan.

The PLR opens the door to new opportunities for employers who:

• want to attract and retain employees with outstanding student loans; and
• have recognized that employees burdened by student loan debt may lack the funds to make 401(k) contributions and receive employer matching contributions.

However, the plan design in the PLR is somewhat atypical, and there remain legal and administrative questions about how such a program would operate in a plan with other features.

Details of the Program. The plan described in the PLR provides a flat 5% match for any participant who contributes at least 2% of compensation. It also provides a similar 5% employer contribution (Student Loan Contribution) in lieu of the match for any participant who makes student loan payments of at least 2% of