Student Loan Payments and 401(k) Matches: Debunking Common Secure 2.0 Misconceptions

The SECURE 2.0 Act introduced a game-changing option: employers can offer a 401(k) matching contribution based on an employee’s student loan payments. This means employees paying off student loans can still get an employer match in their retirement plan, even if they can’t afford to contribute to the 401(k) out of pocket.

It’s a win-win on paper – helping workers tackle debt and save for retirement – but as a brand-new benefit, it’s also ripe for confusion. HR business partners, business owners, and financial advisors are still catching up on how it works, and a few common misconceptions have taken root.

Below, we’ll clear the air on some of these misunderstandings. From who needs to offer the benefit, to how it fits into your current 401(k), to impacts on different employees and your business, let’s break down the facts about student loan payment matching under Secure 2.0.

Misconception 1: Employers Are Required to Offer Student Loan 401(k) Matching

One frequent misunderstanding is that Secure 2.0 mandates all companies to start matching student loan payments. In reality, this provision is optional, not a requirement (How Will the New SECURE 2.0 Act Impact Your Employees' Retirement? - Checkwriters).

The law permits employers to amend their retirement plans to add this feature, but it doesn’t force anyone’s hand. So if you’re an employer worried that you missed some compliance deadline to set up student loan matching – rest easy! You’re not automatically enrolled in this, and there’s no penalty for not offering it.

That said, the fact that it’s optional doesn’t mean it isn’t worth considering. Companies that hire a lot of early-career employees or college grads may find this benefit especially attractive and choose to adopt it, whereas those with a workforce less affected by student debt might hold off (SECURE Act 2.0 - The Student Loan Match - Greenleaf Trust).

The key is that it’s your choice as the plan sponsor whether to add this to your 401(k) or 403(b) plan. Secure 2.0 simply opened the door. If and when you’re ready, you can walk through it by updating your plan documents (the provision became available starting in 2024 for calendar-year plans (SECURE Act 2.0 - The Student Loan Match - Greenleaf Trust).

Just remember: nothing in the law says you have to provide a student loan match – it’s an opportunity, not a mandate.

Misconception 2: Employees Without Student Loans Get Nothing (or Lose Out)

Another concern we hear is that offering a student loan-linked match somehow disadvantages employees who don’t have student debt. Some worry that only those with loans benefit, leaving everyone else out in the cold.

Fortunately, that’s not the case – non-borrowers are not losing any existing benefit, and the plan’s matching formula remains the same for everyone (Demystifying Student Loan Matching: What HR Leaders Need to Know About Secure 2.0 I Summer Blog).

Here’s how it works: if you introduce student loan matching, it must be offered under the same conditions as your regular 401(k) match. By law, any employee eligible for the normal employer match is also eligible for the student loan match ( Understanding SECURE 2.0 Student Loan Matching and Educational Benefits | PLANADVISER ) (New IRS Interim Guidance for QSLP Matches | Highway Benefits). In practice, this just gives people with student loans a new way to earn the company match. Employees without loans continue to earn their match by contributing to the 401(k) as usual – nothing changes for them. They’re not losing funding to coworkers with loans; each employee still has access to the match, either via their own contributions or via loan payments.

Think of the Secure 2.0 provision as leveling the playing field. Previously, an employee funneling money toward student debt might have missed out on, say, a 3% 401(k) match because they couldn’t afford to contribute – while a colleague without loans could easily contribute and get the full match.

Now, the first employee can get that same match simply by doing what they were already doing – paying their loan. Meanwhile, the colleague with no loans is in the same position as before: they’ll receive a match if they contribute to their retirement account. In short, no one is penalized here.

The new policy doesn’t take anything away from employees without debt; it just extends the company’s matching contribution to those employees who previously couldn’t take advantage of it. Everyone who is eligible to participate in the retirement plan can benefit in one way or another ( Understanding SECURE 2.0 Student Loan Matching and Educational Benefits | PLANADVISER ).

Misconception 3: Matching Student Loan Payments Is Complicated to Integrate with Our 401(k) Plan

Some employers imagine that a student loan match would be a whole separate program – maybe with separate accounts, different rules, or money going directly to lenders. Not so!

In reality, it integrates seamlessly into your existing retirement plan. The employer contributions triggered by student loan payments are treated just like any other 401(k) matching contributions (SECURE Act 2.0 - The Student Loan Match - Greenleaf Trust). They go into the employee’s retirement account, not to the loan servicer (Demystifying Student Loan Matching: What HR Leaders Need to Know About Secure 2.0 I Summer Blog).

Essentially, the law lets you count an employee’s student loan payment as if it were a 401(k) deferral, and then you provide the normal matching deposit to their 401(k) plan account (Employers can now match student loan repayments as 401(k ...). There’s no new account to manage and no direct payment to the employee’s lender – the funds help build the employee’s nest egg for the future, which is exactly what a regular match does.

From a plan design perspective, Secure 2.0 intentionally made this simple. The statute says that the match on student loan payments should mirror the match on elective deferrals (Misconceptions SECURE 2.0 and student loans| EBA | Employee Benefit News). So if your plan matches, for example, 50% of the first 6% of pay contributed to the 401(k), then it would also match 50% of the student loan payments up to that same 6% threshold.

The matching percentage and vesting schedule remain the same as in your current plan – you’re just expanding what “counts” toward earning that match (Demystifying Student Loan Matching: What HR Leaders Need to Know About Secure 2.0 I Summer Blog). This means implementing the feature is often as straightforward as a plan amendment and a settings update with your recordkeeper.

It’s not a wholesale overhaul of your retirement plan. In fact, industry experts note it’s “likely a simple update to your retirement plan design” to put this in place (Misconceptions SECURE 2.0 and student loans| EBA | Employee Benefit News).

One more reassuring point: employees can still contribute to their 401(k) on top of taking advantage of the student loan match. Some thought it might be an either/or situation (i.e. contribute to retirement or get the match via loan payments). In truth, workers can do both – they might contribute some portion of their paycheck to the 401(k) and also have some student loan payments, and both will count toward getting as much match as the plan allows (Misconceptions SECURE 2.0 and student loans| EBA | Employee Benefit News).

The only limit is that the employer isn’t going to double-match beyond the plan’s existing matching formula. In other words, an employee can’t exceed the annual match cap – loan payments and personal 401(k) contributions both apply toward the same match limit (How Will the New SECURE 2.0 Act Impact Your Employees' Retirement? - Checkwriters).

But they can mix and match these methods to maximize their benefit. This flexibility is great for employees and doesn’t require any special handling on the employer’s end; your plan already has contribution limits and match formulas, and this simply adheres to those as usual.

Misconception 4: It Will Be a Financial Burden for the Company

Budget-conscious business owners might cringe at the thought of more employees getting full 401(k) matches. It’s true that if you adopt this policy, some employees who weren’t contributing (and thus weren’t costing the company match dollars) will now start receiving matching contributions.

That does represent an increase in your retirement plan expenses. However, it may not be as unmanageable as you’d think, and it could yield benefits that make it worthwhile.

First, remember that you’re not changing the match formula – you’re just allowing more people to actually use the match you already offer. Many employers budget for their maximum potential 401(k) match each year (since any employee could choose to contribute and get the full match). In that sense, this program doesn’t increase the promised benefit; it just means a few more folks will take advantage of it.

As one benefits provider put it, plan sponsors have effectively “already budgeted” for these matching contributions in theory (Navigating the SECURE 2.0 Student Loan Match: Overcoming Challenges and Maximizing Benefits). Now, of course, in practice not everyone was utilizing the match before. With student loan matching, participation will likely rise (that’s the goal!), and so will your actual outlay – but consider that an investment in your workforce. Those matching contributions are also tax-deductible to the company, just like any other employer 401(k) contribution (Navigating the SECURE 2.0 Student Loan Match: Overcoming Challenges and Maximizing Benefits), which helps offset the cost.

It’s also useful to look at who and how many employees might benefit. Not every employee has student debt. Approximately 20% of American adults with a bachelor’s degree carry student loan debt (Navigating the SECURE 2.0 Student Loan Match: Overcoming Challenges and Maximizing Benefits), and some of them might already be contributing enough to get a match even without this program.

The increase in match payouts will likely be focused on a subset of employees who previously couldn’t contribute at all or were contributing less than the match threshold due to loans. For the company, that means you’re directing match dollars to employees who arguably need the help the most – those early-career or mid-career workers trying to pay down education loans.

What’s the payoff? Potentially, a more financially secure and loyal employee base. Companies that have added student loan benefits often cite talent attraction and retention as a major motive. Indeed, turnover statistics support this: about half of all workers are actively job-hunting in any given month, but among workers with student loan debt, over 60% are looking to leave (Misconceptions SECURE 2.0 and student loans| EBA | Employee Benefit News).

Money worries (like hefty loan payments and feeling unable to save for retirement) can push employees to seek higher salaries or better benefits elsewhere. By alleviating one of those worries – essentially giving employees “free money” toward retirement when they pay their loans – you’re showing a tangible commitment to their financial well-being. That can improve morale and loyalty.

In one survey, 78% of student loan borrowers said they feel their employer should help with student debt (Misconceptions SECURE 2.0 and student loans| EBA | Employee Benefit News). Offering a student loan 401(k) match sends a message that you hear that concern and are taking action. Over time, reducing turnover and increasing employee engagement can produce significant cost savings that help balance out the extra match dollars you’re spending on this benefit.

Misconception 5: The Program Is Administratively Difficult and Raises Compliance Issues

New benefits always come with the question, “What will it take to implement and administer this?” At first glance, matching student loan payments could sound complex – HR might picture having to verify individual loan statements, adjust payroll systems, or worry about compliance pitfalls.

The good news is that implementing this feature doesn’t have to be a headache (Misconceptions SECURE 2.0 and student loans| EBA | Employee Benefit News).

From an administrative standpoint, Secure 2.0 built in some flexibility to keep things simple. Many plan recordkeepers are creating a process for employees to annually attest to their loan payment totals, which the employer just keeps on file to satisfy the requirement.

If an employee were to misreport their payments, the IRS’s interim guidance indicates the employer isn’t necessarily on the hook to correct the matching contributions unless a broader pattern emerges (New IRS Interim Guidance for QSLP Matches | Highway Benefits). In short, there’s trust and flexibility built into the system to make administration easier.

Plan compliance testing is another area of concern. Companies might worry that adding this feature could throw off their 401(k) nondiscrimination tests or safe harbor status. Here again, Secure 2.0 anticipated the issue and provided relief. The law allows plan sponsors to perform separate Actual Deferral Percentage (ADP) tests for those who receive the student loan match and those who do not, if that’s beneficial (IRS schools sponsors on SECURE 2.0's new student loan match).

In other words, you can test the 401(k) plan in two groups – one group of employees who are getting matches via student loan payments, and one group who are getting the regular match – to ensure one group isn’t skewing the results of the other. Alternatively, you can include the student loan match users in the regular test as if they had made 401(k) contributions themselves (IRS Addresses Matches for Qualified Student Loan Payments - Segal) (since, economically, that’s the effect).

The IRS guidance confirms that these matching contributions will be treated like normal matching contributions for testing purposes, and plans won’t be penalized for using this feature as long as they apply it uniformly (IRS Addresses Matches for Qualified Student Loan Payments - Segal). In short, you won’t jeopardize your plan’s compliance by adding a student loan match provision, provided you follow the rules (which, as we discussed, require uniform eligibility and the same match rate for everyone).

Finally, while the mechanics are new, you’re not alone in implementing them. Retirement plan providers, recordkeepers, and fintech companies have been gearing up since Secure 2.0 passed to help employers roll this out. In fact, many recordkeepers already have (or are about to release) built-in support for tracking student loan payments and facilitating the corresponding match.

And if you don’t want to DIY the tracking and verification, there are third-party solutions that can automate the process for you (Misconceptions SECURE 2.0 and student loans| EBA | Employee Benefit News). These tools can handle collecting employee self-certifications, confirm loan eligibility, and integrate with payroll and 401(k) platforms to ensure matches are correctly applied.

In other words, you won’t necessarily be shuffling through paperwork every month – modern platforms (like Loan Certify’s, for example) can make it pretty turnkey.

As one industry expert noted, “trusted tech solutions and recordkeepers are already on top of enrollment and implementation” for this benefit (Misconceptions SECURE 2.0 and student loans| EBA | Employee Benefit News). With the right partner, offering a student loan 401(k) match can be almost as easy as running a standard retirement plan match.

It’s also worth noting that the regulatory environment is supportive. The IRS has issued interim guidance to clarify operational details, and more guidance is expected as the program matures (New IRS Interim Guidance for QSLP Matches | Highway Benefits).

Employers do not need to wait for further rules to get started, however ( Understanding SECURE 2.0 Student Loan Matching and Educational Benefits | PLANADVISER ). The path to compliance is already clear enough to move forward – and if anything, we’ll likely see additional simplification from regulators over time as they refine the process.

So, while it’s normal to have compliance questions with any new benefit, early indications are that this one is on solid footing. You can confidently move ahead, knowing that the law and guidance have laid out how to implement the match correctly, and that resources exist to help you manage it efficiently.

Conclusion: Leverage Secure 2.0 for a Win-Win Benefit

The Secure 2.0 student loan repayment match is an exciting development at the intersection of debt management and retirement planning.

By dispelling these misconceptions, we see that it’s not as daunting as it might first appear: employers aren’t forced into it, it doesn’t hurt other employees, it slots into 401(k) plans with relative ease, the costs are predictable and potentially offset by big upsides, and the administrative hurdles are quite manageable.

In fact, this provision offers a clever way to turn a financial stressor (student loans) into a motivating force for retirement saving – benefiting employees and employers alike in the long run.

If you’re considering adopting a student loan matching program or want to learn more about how it works in practice, we’ve got you covered.

Take the next step toward empowering your team’s financial future – download Loan Certify’s capabilities deck or white paper for a deep dive into how this benefit can be implemented seamlessly and effectively.

Our resources provide further insights, real-world examples, and best practices to help you unlock the full potential of Secure 2.0’s student loan match feature.

Don’t let misconceptions hold you back from exploring this win-win benefit – get the information you need and see how Loan Certify can help make it a reality for your organization.