Watershed! 2019 Student Loan Repayment Benefit UPDATE

he Student Loan Repayment Benefit is BIG NEWS lately and it’s no longer being dismissed by Benefits Consultants as a passing fad.

The fever pitch of the Student Loan crisis has broken the $1T American debt ceiling and shows no signs of slowing. Employee Benefits Consultants to the rescue…

To date the most common employer barriers to implementing an SLRB program has been tax disadvantage and cost to deploy. I am predicting that the tax disadvantage is quickly going to disintegrate in 2019.

As of 12/1/2018, the only organization in the US that has been able to implement a tax advantaged SLRB, via IRS Private Letter Ruling (PLR) has been Abbot. 

As a result of Abbot’s PLR, The ERISA Industry Committee (ERIC) has filed a formal Revenue Ruling Request (RRR) with the IRS to broaden Abbot’s PLR to more employers. In step with ERIC, United States Congress is now fleshing out the riveting “Employer Participation in Student Loan Assistance Act” with some very influential supporters behind it.

How did the watershed begin?

Abbott’s EVP of Human Resources Steve Fussell was perplexed by the lack of participation in Abbot’s 401(k) program.  Upon further analysis of the participation problem it was discovered that employees weren’t contributing towards their 401(k) as a direct result of their student loan debt. He consulted employment counsel and they partnered on taking action.

Abbot filed a petition with the IRS for a Private Letter Ruling (PLR) regarding the tax status of Abbott’s contributions towards an SLRB. During the IRS’ review of Abbot’s petition, the IRS challenged Abbot to substantiate that eligible employees (those with Student Loan Debt) who were unable to contribute at least 5% to their 401(k) were contributing at least 2% of net salary towards their Student Loan debt.

Abbot was able to accomplish this by combination of manual verification directly with employees and verification directly with lenders in some cases. After Abbott having satisfied the substantiation, The IRS published what is now known as “Abbot’s PLR” granting Abbott employees the following 3 tax concessions:

  • If the employee makes a student loan repayment equal to at least 2 percent of compensation in a pay period, the employer will make a 5 percent-of-pay non-elective contribution to the Section 401(k) plan for that pay period on the employee’s behalf.
  • If an employee does not make a student loan repayment of at least 2 percent, he/she can still make an elective deferral to the Section 401(k) plan of at least 2 percent and receive an employer matching contribution of 5 percent of pay on a per-pay period basis.
  • An employee cannot receive BOTH employer contributions; if an employee makes the 2 percent loan repayment, he/she can make elective deferrals to the Section 401(k), but will not receive the additional 5 percent match, just the 5 percent non-elective contribution.

Full disclosure, a PLR doesn’t set a legal precedent or apply to any other employers offering SLRB.

My prediction is that the same SLRB vendors who have already deployed their legal magicians upon Washington to lobby politicians will also begin trying to duplicate Abbott’s successful IRS petition for their existing clients. I also predict that in the same way that the ACA’s grandfather/mother provisions allowed certain concessions to legacy plans, the employers who implement an SLRB prior to legislation will receive the Lion’s share of advantages with respect to both government regulation and their current vendors.

Stayed tuned.

About Jonathan Mentor

As a licensed Employee Benefits Broker, I consult employer groups of all sizes on how to navigate the complexities of employee health, wellness, insurance and rewards. My professional network and curiosity have taken me across the country in search of disruptive and exacting solutions in response to my clients need to remain on the cutting edge of employee benefits.

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