Structuring Student Loan Repayment Benefit Programs: IRS Guidance, Applicable Rules, Key Planning Considerations

In the past, employers generally focused on providing their employees with financial assistance for the costs relating to education programs taken during their employment. Fortunately, employers have had the ability to provide much of that financial assistance to employees on a tax-free basis under a qualified educational assistance program or as a working condition fringe benefit. As the cost of post-secondary education skyrocketed, however, many employers have sought ways to provide their employees instead with relief from their astronomical student loan debt.

While employers look for efficient approaches to provide employee debt relief, the federal government has begun to take action to assist these employers. In 2018, the IRS issued a private letter ruling approving the design of a student loan repayment program under which an employee would be entitled to “matching” contributions under the employer’s 401(k) plan conditioned on that employee making student loan repayments. Interest in the ruling was so widespread that the IRS is considering issuing guidance for all employers and will no longer consider similar ruling requests. Then, earlier this year, the federally-enacted Coronavirus Aid, Relief and Economic Security Act (CARES Act) allows employers to make tax-free payments of up to $5,250 towards their employees’ qualified educational loans.

Listen as our panel discusses the applicable rules and critical planning considerations for employers considering the implementation of student loan repayment programs. The panel will also discuss the impact of the CARES Act, challenges for multiemployer plans, and other key issues.