As employers look for creative ways to help employees manage their student loan debt, the IRS recently ruled that employer nonelective contributions to a 401(k) plan for employees who make student loan repayments would not violate the Internal Revenue Code’s contingent benefit rule. That rule prohibits an employer from making any benefit (other than matching contributions) contingent, directly or indirectly, on an employee’s making, or not making, elective deferrals under the 401(k) plan.
The guidance came in the form of a Private Letter Ruling (“PLR”), which may only be relied on by the employer who requested the ruling. Nonetheless, the PLR is instructive for other employers wishing to provide similar tax-favored benefits for employees who may not otherwise be in a position to contribute to their retirement savings.
In the PLR, the employer’s 401(k) plan provided a 5% match on eligible compensation for each pay period in which the employee made an elective deferral of at least 2% of eligible compensation.
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