September 4, 2018
Authored by: Jennifer Stokes and Adam Braun
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