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Your 401(k) plan may help employees with student loan debt

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Alice Gilman

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in Centerpiece,Employee Benefits Program

Under tax code Section 127, you can subsidize employees’ education, tax free, up to $5,250 a year. But that doesn’t help employees who come into your workplace already saddled with debt. However, a private letter ruling from the IRS may provide you with a novel option to help employees through your 401(k) plan. (PLR 201833012)

Note: PLRs are intended as private advice from the IRS to the requesting party. They may be used for informational purposes only; they may not be used or cited as precedent.

New 401(k) plan option? 401(k) plans can’t base other benefits on employees’ electing to participate in the plan. This is called the “contingent benefit prohibition.”

The IRS was asked whether this set up violated the prohibition on contingent benefits: An employer would make a 5% nonelective contribution into employees’ 401(k) accounts if they paid back their student loans at a rate of 2% of their 401(k) eligible ...(register to read more)

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