Camilo Maldonado writes in Forbes about a very interesting IRS ruling that would your employer to deposit matching funds into your 401(k).
It is always a struggle to get employees to make 401(k) investments, even when the company provides free money in matching funds.
Under the IRS ruling, companies would be able to help employees save even if they don’t make contributions into the 401(k) program. As long as the employee is making qualified student loan payments the company may provide a matching amount and deposit it into the retirement account. This would be a significant benefit for employees and offset their student loan payments with critical retirement savings.
While individual companies electing to take on such an approach would have to clear it with the IRS, at least now there is an opinion letter to point to.
As Maldonado says, “Under the specific plan reviewed by the IRS, the benefit would work as follows. Let’s assume an employee receives compensation of $2,500 during a two-week pay period, or roughly $5,000 per month. As long as the employee makes a monthly student loan payment of at least 2% of their eligible pay or $100 ($5,000 x 2%), the employer would make a matching contribution equal to 5% of the employee’s eligible pay or $250 ($5,000 x 5%) into their 401K retirement plan. To meet the minimum 2% contribution, the employee would still be allowed to make elective contributions to the 401K plan.”
This ruling and other options I’ve seen are a positive step in student loan-burdened employees finding some help from the good companies they work for.