NEW: IRS ruling on tax-advantaged student loan repayments

In August, the IRS issued a groundbreaking ruling that could affect the tax treatment of employers’ student loan repayment contributions. We can help you understand what the ruling means, how to explain it to your stakeholders and how companies can act on it to offer a differentiated benefit before their competitors do.

What the IRS ruling says and does:

The IRS issued a Private Letter Ruling (PLR) that applies (in theory) only to one specific sponsor and plan design. The plan in question has a feature where employees who make student loan payments qualify to receive a company contribution to their 401(k)s. Normally, employees need to contribute to their 401(k) account to receive matching contributions. In this case, the contributions aren’t exactly “matching”, which is why we call this a “Mirroring” plan, to differentiate it from a Direct Contribution plan. Peanut Butter can design and administer both types of plans.


401(k) savings


The IRS ruled that this design doesn’t violate the Contingent Benefit rule for 401(k) plans (which was the concern of the sponsor). And with the advantages of plans like this, we expect a significant number of larger employers to adopt Mirroring plan features like this over the next 12-18 months, because it’s good for both employers and employees.  

  • Employers can offer a tax-advantaged benefit that differentiates them from competitors and helps them attract talent. They may also be able to tap budget dollars previously allocated for 401(k), lowering the internal hurdles to implementation.
  • Employees can continue to pay down their student loans, but also get to put money in their retirement accounts. The difficulty of doing both is a common complaint among student debt-holders.


This change in the market means more employers will offer student loan repayment as a benefit. So ALL employers need to develop their strategy as soon as possible. But mirroring won’t be right for all employers. Let’s summarize the benefits and also point out some of the challenges of plans like this.


Why would an employer choose to offer a Student Loan Mirroring Plan?

  • To differentiate in the market for talent – Student Loan Assistance is a cutting-edge benefit that
  • To retain employees – research continues to show that employees are willing to stay longer with employers who offer it
  • To benefit their employees while saving on payroll taxes, potentially using budget dollars that are already allocated to the 401(k) plan


What are some of the challenges involved in offering a Mirroring Plan?

  • If the employer uses a Safe Harbor 401(k) plan, it will be difficult to offer to align the percent contributions with the mirroring plan
  • Requires a plan amendment, developed with the plan administrator and legal counsel
  • Because it’s integrated with the 401(k) plan, it will require annual testing
  • Prudent employers will seek IRS review of the plan amendment before implementing — this takes time
  • The eligible population is likely to be larger and less targeted than is possible under a Direct plan, increasing plan cost


What type of plan is right for my company?

  • Many large employers will have completed IRS review and begin offering these programs in 12 months
  • But many employers who recognize the market shift are starting by offering a Direct plan immediately
  • Direct plans are always appropriate for companies that have Safe Harbor 401(k) plans (this is most SMBs) and any size employer that doesn’t want to incur the expense of a larger, more inclusive plan redesign
  • All contribution plans should include tools to help employees manage their student debt — research shows that most don’t even know where to start



How can Peanut Butter help – now and in the future?

  • Employers can begin demonstrating their commitment to helping employees with student loan debt immediately – by launching Student Loan Resources immediately and at nominal cost
  • Every Peanut Butter subscription comes with a free Student Debt Prevalence Analysis and Plan Design Recommendation, so you are supported in building your program. Employers pursuing a Mirroring plan will also receive Peanut Butter’s proprietary Mirroring Guide, with sample language to inform your counsel in writing the 401(k) plan amendment.
  • Many employers will see an advantage in offering a Direct repayment plan now; Peanut Butter can support Direct plans for all of your employees, or just a small group, including later switching between Direct and Mirroring Plans
  • Regardless of plan, Peanut Butter provides the employee communication, technical support, payment management and tracking to make your program effective and easy to administer.


The IRS ruling represents a significant shift in the market. Forward-thinking employers are already working with Peanut Butter to act on it and offer student loan benefits to their employees. How can we help you stay ahead of competitors and the market to attract and retain your industry’s best talent?