Companies have considered various ways to retain and incentivize their younger, and increasingly mobile, workforce.  A recent PLR offers another option: using a 401(k) plan to provide additional benefits (in the form of a nonelective contribution) to employees who pay down their student debt during the plan year.

On August 17, 2018, the IRS released a private letter ruling (PLR 201833012) in which it ruled that a proposed student loan repayment program included in a 401(k) plan does not violate the contingent benefit rule in Internal Revenue Code Section 401(k)(4)(A) and Treas. Reg. 1.401(k)-1(e)(6).  The requesting company’s 401(k) plan and proposed student loan repayment program included the following features:

  • An employee may elect to contribute eligible compensation to the 401(k) plan as pre-tax or Roth elective deferrals, or after-tax employee contributions.
  • If an employee makes an elective contribution during a payroll period equal to at least 2% of eligible compensation during the pay period, the company makes a matching contribution equal to 5% of eligible compensation during the pay period.
  • An employee may elect to enroll in the student loan repayment program and may opt out on a prospective basis. An employee who participates in the program would continue to be eligible to make elective contributions to the 401(k) plan but would not be eligible to receive regular matching contributions with respect to those elective contributions while participating in the program. The employee would be eligible to receive nonelective contributions and a true-up matching contribution, as