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Legislation Paves Way for Retirement Match on Student Loan Repayments


A key member of Congress has reintroduced legislation that would permit 401(k), 403(b), SIMPLE and governmental 457(b) retirement plans to make matching contributions to workers as if their student loan payments were salary reduction contributions.

Sen. Ron Wyden (D-OR), Ranking Member of the Senate Finance Committee, reintroduced the Retirement Parity for Student Loans Act on May 13. The legislation seeks to address the current-law stipulation whereby employers can only make a matching contribution to a 401(k) if an employee is also making contributions. Wyden explains that it would assist recent graduates who may be having trouble saving for retirement, while simultaneously repaying their student loans. 

Under the terms of the bill, this would be a voluntary decision on the part of plan sponsors. If a plan chooses to offer this option, however, the benefit must be made available to all workers eligible to make salary reduction contributions and receive matching contributions on those salary reduction contributions. The benefit would apply only to repayments of student loan debt that was incurred by a worker for higher education expenses, and employees would be required to provide evidence of their student loan debt payments. 

The bill stipulates that the rate of matching for student loans and for salary reduction contributions must be the same. In addition, special rules would apply if a worker makes both salary reduction contributions and student loan repayments, such that student loan repayments would only be taken into account to the extent a worker has not made the maximum annual contribution to the retirement plan. 

The legislation also provides clarification on certain nondiscrimination rules that apply to 401(k) plans, as well as safe harbors that deem the nondiscrimination rules are satisfied if certain matching or other employer contributions are made to the plan.  

Building Momentum

The legislation appears to build on an IRS private letter ruling (PLR) issued last year permitting a 401(k) plan to be amended to include a student loan benefit program. That ruling allowed an amendment to a plan providing that student loan repayment (SLR) nonelective contributions under the program would not violate the “contingent benefit” prohibition. But as a PLR, it applied only to the specific plan and issue in question. 

To justify the legislation, Wyden cites data by the Employee Benefit Research Institute showing that households headed by a person age 35 or younger with a college degree and no student loan debt reportedly has a median DC account balances of $20,000, as compared to $13,000 for similar families that have student loan debt. 

Cosponsors include Senate Finance Committee members Maria Cantwell (D-WA), Ben Cardin (D-MD), Sheldon Whitehouse (D-RI), Maggie Hassan (D-NH) and Sherrod Brown (D-OH). The text of the bill is available here and a summary is available here

As a general matter, student loan debt relief continues to receive significant attention on Capitol Hill, including bipartisan Senate legislation introduced in February that would allow employers to provide tax-free student loan assistance for their employees. 

Wyden’s legislation also comes as the Senate Finance Committee turns its attention to retirement security issues, including a hearing scheduled for May 14.