A federal government crackdown on consumer information leaks is threatening new tax code provisions designed to let employers help their workers save for retirement while paying off college debt.
Industry groups representing the nation’s largest 401(k) plan sponsors are warning the IRS that federal loan servicers won’t be able to share data with recordkeepers under the 2021 Stop Student Debt Relief Scams Act (Pub. L. No. 116-251). As a result, it may be up to employers to police the system and verify worker loan repayment claims, steering businesses away from an already optional plan add-on.
The SECURE 2.0 Act (Pub. L. No. 117-103) allows plan sponsors to count a worker’s student loan repayments as if they were retirement deferrals in order to make matching employer contributions. The provision allows young workers in particular to get a head start on retirement savings while focusing on paying off their educational debt.
Given regulators’ emphasis on self-certification, employers have already been hesitant to adopt the student loan matching provision for fear that they could be held liable if a worker games the system. Plan sponsors weighing in on IRS interim guidelines during a just-closed comment period say they’re fearful there’s otherwise no way to confirm employees are doing what they say.
“This has the potential both to reduce implementation of the matching programs envisioned by Section 110 of the bipartisan SECURE 2.0 Act and to result in worse financial outcomes for plan participants,” said Andy Banducci, senior vice president for retirement and compensation policy at the ERISA Industry Committee, in a letter to the tax agency. “It also adds to the burden for plan participants, as they will need to manually certify information that could be certified through the service-providers.”
Third-party retirement plan service providers have already reported having difficulty accessing loan servicer data they use to provide holistic financial wellness tools on user-specific web interfaces, Banducci said.
DOE guidance issued in 2021 anticipated an application process that trusted third parties could use to gain access to loan servicer data, but it hasn’t yet been made public, effectively locking out other financial service firms.
Until an integrated system is possible, self-certified data will be prone to errors, which could sacrifice a worker’s otherwise eligible match or put an employer in legal jeapordy, said Chantel Sheaks, vice president for retirement policy at the US Chamber of Commerce in a comment letter.
“The practical result is that employees now must manually upload their loan payment date and amount, resulting in unintended errors and making it more burdensome for a plan participant to participate in these programs,” Sheaks said.
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