The IRS recently issued a private letter ruling (PLR) addressing a plan sponsor’s desire to amend their retirement plan to include a program for employees making student loan repayments (SLR). The ruling would allow plan sponsors to provide employees with matching contributions to their retirement plan, essentially offsetting SLRs. The PLR states that the program would allow a participant to both defer into the retirement plan and make SLRs, and receive either a matching retirement plan contribution or additional compensation to offset their SLR.
Employers are increasingly aware of the heavy student debt carried by current and future employees and may wish to assist them in alleviating this burden. From a practical perspective, this particular design is meant to allow employees who cannot afford to both repay their student loans and contribute to the retirement plan, the ability to avoid missing out on the “free money” – employer match – being offered by their employer in the retirement plan.
All that said, it is important to note that a PLR is directed to a specific entity requesting the ruling, and applicable only to the specific set of facts and circumstances included in the request. That means other entities cannot rely on the PLR as precedent. However, it does provide insight into how the IRS views certain arrangements. Thus other plan sponsors that wish to replicate the design of the facts and circumstances contained in the PLR can do so with some confidence that they similarly will not run afoul of the contingent benefit prohibition.
It is important to note that this PLR is for a private sector 401(k) plan sponsor and not a governmental 457(b) plan. More on this topic later if we see a trend developing.