The Good News and Bad News Regarding the Recent IRS Ruling on Student Loan Repayment Assistance Programs
Those of you who follow me on Twitter already know that I am a HUGE fan of student loan repayment assistance programs. Student loan debt is one of the main reasons millennials do not save for retirement at a time when saving for retirement is critical, due to the time value of money. Well, apparently Abbott Labs agrees. They have implemented a program that allows participants to continue to receive employer matching contributions, provided they repay their loans at the same level as they had been deferring their own money into the plan. In other words, Abbott Labs retirement plan now matches student loan repayments!
As a result, people who could not afford to make their student loan repayments and simultaneously defer into their retirement plan now only need to make the loan repayments that they were likely making anyway (unless they are contributing less than the 2 percent of pay that was required here to receive the employer contribution, in which case they would need to bump up their student loan repayment to that amount). In a word (or three)—THIS. IS. AWESOME!
Due to IRS restrictions, it was uncertain whether Abbott Labs could do what they wished to do. Thus, they requested (or at least we believe they requested, since the process is confidential) what is called a “Private Letter Ruling” from the IRS to determine if they could, in fact, implement this program without breaking any IRS rules. Fortunately, the IRS said they could, which was very, very good news! And as Nixon Peabody points out, this could certainly open the door to other entities sponsoring similar programs.
So, what’s the bad news? Well, as Ary Rosenbaum of That401(k)Site has stated, the Private Letter Ruling applies to only Abbott Labs (or whomever requested it if it was not Abbott Labs). Thus, it might not be the best idea for plan sponsors to implement their own plans unless they request their own Private Letter Ruling (which is not the easiest of things to do). So, until potential future IRS guidance is issued that would apply more broadly, this is limited.
In the meantime, there are other ways for plan sponsors to provide student loan assistance, and I strongly suggest that employers explore these programs. These programs ideally not only improve employee financial wellness, but retirement plan savings as well!
Note: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.
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