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Pioneering IRS scheme paves the way for a new 401(k) plan for student loans Benefits

Friday, the IRS published a privately issued Briefing Judgment (PLR) that will help clear the way for governments to deliver a new kind of loan repayments service as part of their 401(k) schemes. With the issue of the PRS, the IRS gave its approval for an employer-provided reimbursement of the students' loan provided through an employer's 401(k) scheme.

From a historical perspective, many planning patrons had doubted whether such an idea would be permitted under the IRS' own rule. In general, the PRLR affirmed that in certain conditions under certain conditions there may be a possibility for employer organisations to combine the amount of company contribution made on the behalf of an individual under a 401 (k) scheme with the amount of repayment of students' loans made by the individual outside the scheme.

Specifically, as stated in On the Subjectpublished on Friday, the IRS came to the conclusion that an employers could make a non-selective commitment to its 401(k) scheme in which the amount of the non-selective commitment would be calculated on the basis of an employee's aggregate loan repayment and would be transferred to the scheme in place of the corresponding commitment that would otherwise have been made to the scheme if the worker had made payments before taxes, Roth 401(k) or after taxes.

Given that more and more students loan benefits programmes are becoming effective for attracting and retaining stakeholders, especially those with young and skilled workers, the LLP is likely to lead many companies to consider providing a loan as part of their pension scheme. It is important that those who wish to do so should take note of reviewing their 401(k) schemes for specific regulations, characteristics or arrangements (outside those debated in the PLR) that could put in place further barriers to link the level of contractor contribution made on a worker's account under a 401(k) scheme to the level of repayment of students' loans made by the worker outside the scheme.

Some of the specific arrangements that exist for safe-harbour schemes, for example, could restrict an employer's capacity to provide a similar performance scheme for students' loans.