Student Loans vs Retirement Savings: IRS Rules Support Employers Addressing the Contribution Clash
The IRS has issued a private-letter ruling permitting an employer to make contributions to a 401(k) plan based on employees’ repayments of student loans.
For employees with too much student debt to make plan contributions, this could help provide retirement savings.
In August, the IRS released a ruling in which it considered an employer’s proposal to offer a voluntary program under which the employer would make a contribution to employees’ 401(k) accounts based on amounts paid by the employees to repay a student loan. The IRS ruled that such a program would not violate a Treasury regulation that generally prohibits retirement plans from conditioning most plan benefits on whether the employee chose to contribute to the plan instead of receive cash. The IRS reasoned that the employer’s student loan-based contributions to a 401(k) account would be conditioned on whether the employee made a student loan payment — not on whether the employee chose to make contributions to the 401(k) plan.
Although the IRS ruling in this case only applies to the employer who requested it, it has generated a good deal of interest from the employer community insofar as it serves as a helpful indication of how the IRS could view other similar benefit programs. A legislative proposal released by Senator Ron Wyden (D-OR) two years ago addresses this same issue — basing employer contributions to a plan on student loan repayments — and would make such an arrangement even easier to maintain.
The views expressed in this material are the views of SSGA Defined Contribution as at 05 November 2018, and are subject to change based on market and other conditions.
This document contains certain statements that may be deemed forward looking statements. Please note that any such statements are not guarantees of any future performance, and actual results or developments may differ materially from those projected.
The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. Investing involves risk, including the risk of loss of principal. The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA’s express written consent.
Diversification does not ensure a profit or guarantee against loss.
This information is for informational purposes only, not to be construed as investment advice or a recommendation or offer to buy or sell any security. Investors should always obtain and read an up-to-date investment services description or prospectus before deciding whether to appoint an investment manager or to invest in a fund. Any views expressed herein are those of the author(s), are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may make different investment decisions for different clients. There are no guarantees regarding the achievement of investment objectives, target returns, portfolio construction, allocations or measurements such as alpha, tracking error, stock weightings and other information ratios. The views and strategies described may not be suitable for all investors. SSGA does not provide tax or legal advice. Prospective investors should consult with a tax or legal advisor before making any investment decision. Investing entails risks and there can be no assurance that SSGA will achieve profits or avoid incurring losses.
Performance quoted represents past performance, which is no guarantee of future results. Investment return and principal value will fluctuate, so you may have a gain or loss when shares are sold. Current performance may be higher or lower than that quoted.
Images of NYSE Group, Inc. are used with permission of NYSE Group, Inc. Neither NYSE Group, Inc. nor its affiliated companies sponsor, approve of or endorse the contents of this program. Neither NYSE Group, Inc. nor its affiliated companies recommend or make any representation as to possible benefits from any securities or investments.