IRS Permits Student Loan Repayment Benefit as Part of Employer’s 401(K)

On August 17, 2018, the federal Internal Revenue Service released a private ruling letter (Number 201833012) concluding that an employer may amend its 401(k) plan to provide student loan repayments (SLR) nonelective contributions under the program without violating the “contingent benefit” prohibitions of 26 U.S.C. § 401(k)(4)(A) and § 1.401(k)-1(e)(6).

The ruling assumes that the employer will

not extend any student loans to employees eligible for the program and details how SLR payments may be linked to the employer’s 401(k) plan.

The ruling is directed only to the employer (referred to in the letter as an “individual taxpayer”) who requested it and may not be used or cited as precedent. However, the private ruling carries significant weight because it permits a new type of student loan repayment through an employer’s 401(k).