Companies shy away from IRS 401(k) student loan matching guidelines

The IRS has issued guidance on how firms can use a 401(k) match to match an worker’s contribution to student loan repayment, but some employers have been slow to implement the ruling.

According to Bloomberg Law employers were reluctant to implement IRS guidelines because they’re concerned in regards to the additional complexities resulting from the ruling, regardless that Fidelity Investments, SoFi Technologies and Betterment LLC have already offered to establish student loan matching services.

Employees are also cautious about implementing latest IRS guidance as they watch how the federal government approaches student loan forgiveness.

However, under IRS guidelines, employers can count repayments as a part of an worker’s deferred retirement, which allows employees participating in a 401(k) matching program to save lots of for eventual retirement while paying off student loan debt.

“The problem isn’t student loans; the issue is the cost of education,” Betsy Mayotte, president and founding father of the Student Loan Institute, told Bloomberg Law. “We can apply any variety of band-aids and antibiotics to a student loan to make things easier for borrowers, and we should always proceed to achieve this, but we’re primarily treating the wound, not trying to forestall it. “

As of Sept. 30, Verizon Communications Inc., Chipotle and Abbott Laboratories are amongst the businesses which have opted to benefit from the 401(k) student loan matching program, but concerns remain.

“This guidance is certainly welcome and helpful, but they (employers) want to be sure that additional help is available to the extent that foot defects exist; they can be easily corrected,” Gabe Marinaro, partner at Akerman LLP, told Bloomberg Law.

Barry Salkin, a member of the Wagner Law Group, told the web site that risk-averse employers don’t actually need so as to add too many elements to their existing 401(k) plans. “Things can go wrong when making a plan,” he added, “but I don’t classify it as a high-risk proposition, like offering cryptocurrency.”

As it stands, the important obstacle to widespread adoption of those plans is data collection and verification issues.

“Actually proving that people are paying off their student loans, that they’re not in default, or that they’re not taking advantage of options like forbearance and deferment is something that still needs to be clarified,” financial consultant Raya Reaves, owner of City Girl Savings, told Bloomberg Law.

According to Jantz Hoffman, chairman of the Certified Student Loan Standards Board, data collection has grow to be harder partially due to the STOP Act of 2020, which goals to guard data from fraud targeting individuals with student loan debt.

“The STOP Act data restrictions make it very difficult for plan administrators to manage a plan with a matching component because there is no automated way to receive this data,” Hoffman told Bloomberg Law. “They also won’t want to take on a big cost burden by forcing their employees to register on the portal and send payments through it for verification, because it’s expensive.”

Hoffman also said some employers need to ensure that they are not showing favoritism to a small segment of the workforce.