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Treasury Pulling Back From Student Loan Retirement Plan Rules

Sept. 21, 2021, 6:40 PM

The Biden administration has pulled back from working on new rules that would allow employers’ retirement plans to make contributions to retirement savings plans based on their workers’ student loan payments.

“That’s sort of fallen off the immediate ‘we’re-working-hard category,’” William Evans, an attorney adviser in the Department of the Treasury’s Office of Benefits Tax Counsel, said Tuesday at the American Bar Association’s 2021 Fall Tax Meeting. Much work had to be done to implement the provisions of the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE), taking up time and resources, he said.

The SECURE Act made major changes to retirement savings plans, including increasing the age at which required minimum distributions must be taken to age 72 from 70 1/2 and reducing the ability to stretch distributions from inherited IRAs for most non-spouse beneficiaries over their life expectancy to 10 years.

“There’s been a lot of congressional interest in the topic, and there’s some idea to sort of see what happens on the legislative front on student loans,” Evans said.

There has been a push to allow student loan payments to count when employers make contributions to defined contribution plans like 401(k)s. Young adults contribute less to the retirement plans, and many believe student loan payments prevent them from doing so.

In 2018 the Internal Revenue Service issued a private letter ruling allowing an unnamed company to amend its 401(k) plan so that employees who agreed to contribute at least 2% of their pay toward student loans would be eligible to receive employer contributions of 5% of their pay.

The government had been working on expanding that private letter ruling “to be more reliable” and to address nondiscrimination issues, Evans said.

Implementing SECURE Act

The administration is “working hard” on regulations that would implement Sections 102 and 103 of the SECURE Act so that 401(k) plans that use non-elective employer contributions as their “safe harbor” contributions no longer have annual notice requirements, Evans said. Safe harbors are legal provisions that specify conduct that is deemed not to violate regulations.

The IRS is also working on proposed regulations on how IRS Notice 2016-16 rules for mid-year changes to 401(k) plans would interact with the SECURE Act, Evans said.

In addition, the IRS is working on a “pathway to compliance” guidance on how to satisfy distribution requirements if retirement plans participants can’t be found, Evans said.

“We’re making progress there and hope to be able to provide helpful guidance,” Evans said. “We recognize that there are issues relating to kind of withholding and reporting, in particular for replacement checks, or for where the plan administrator discovers that a check was not actually sent to the correct address,” he said.

To contact the reporter on this story: Sara Hansard in Washington at shansard@bloomberglaw.com

To contact the editor responsible for this story: Brent Bierman at bbierman@bloomberglaw.com

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