In late 2024, 20% of student loan borrowers were behind on payments or in collections, up from 16% a year earlier, according to the Federal Reserve’s Survey of Household Economics and Decision-Making. Over roughly the same stretch, only 55% of adults said they had set aside three months of expenses, and 37% would not have covered a $400 emergency in cash.
The effect student loans, or any monthly expense, has on savings is predictable. At home, an added expense in a tough economy often looks like people rotating payments every month to avoid collections. At work, it often shows up as increased turnover, as people either take another job for a modest raise or simply burn out from stress.
A benefits consultant can help you find ways to create financial wellness programs so employees can make ends meet in a way that is both cost-effective and personally useful.
The Match Your Employees Aren’t Claiming
Section 110 of the SECURE 2.0 Act allows employers to provide matching contributions on qualified student loan payments just as they would for traditional elective deferrals. If an employee pays on a student loan they’ve taken for themselves, their spouse, or a dependent, the employer can match those amounts into a 401(k), 403(b), governmental 457(b), or SIMPLE IRA plan.
Implementing this requires an amendment and is entirely optional.
The exact matching formula would depend on the plan’s formula, its limits, and payroll procedures. The cost to the employer is perhaps the difference between current and full participation. The benefit to the employee could range from contributing to the plan when they hadn’t previously, or shifting dollars they were paying into the plan out, so that their qualified student loan payments can be used for the program.
IRS Notice 2024-63 offers guidance on this change, including:
- The match rate for loan payments has to equal the match rate for deferrals.
- Everyone eligible for the deferral match has to be eligible for the loan match.
- Vesting has to be identical.
- The benefit applies to employee student loans as well as loans they’ve taken for a spouse and dependents.
A year’s qualified student loan payments can be counted only up to the 402(g) elective deferral limit ($24,500 for 2026, or the employee’s compensation if that’s lower), reduced by whatever the employee actually deferred. Catch-up contributions don’t raise that ceiling.
SIMPLE IRA plans use their own limit, which is $17,000 for 2026. Note that this caps the payments eligible for a match, not the match itself. What the employer actually contributes still comes out of the plan’s existing match formula.
Two Routes to Emergency Savings
The SECURE 2.0 Act also created the after-tax pension-linked emergency savings account (PLESA). Programs can automatically enroll employees into PLESA, but the default rate can’t exceed 3%. Employees can withdraw at least once a month without documenting an emergency, and the first four withdrawals in a year have to be free.
The Plan Sponsor Council of America’s most recent 401(k) survey put adoption of PLESA programs at roughly 3% among the smallest plans, with the large majority of plans in every size band not considering one at all. The reasons are practical, including the need for separate accounting, an annual notice that has to land 30-90 days before contributions begin, and monthly withdrawal processing.
The alternative is simpler and available regardless of plan design. A split-deposit payroll feature routes a fixed dollar amount from each paycheck into a separate savings account, with automatic enrollment and a one-click opt-out. There’s no balance cap, no restriction based on compensation, no ERISA (Employee Retirement Income Security Act) plan asset question, and no annual notice, because the money never enters the retirement plan.
For many mid-market employers, split deposit is the faster path to a funded cushion, and the in-plan account earns its administrative cost mainly when the recordkeeper already supports it cleanly.
The Tax-Free Payment Most Employers Overlook
Section 127 of the tax code lets you pay up to $5,250 per employee per year toward student loans, free of federal income and payroll taxes for both the employee and the company. This was originally temporary and set to lapse at the end of 2025, but was then made permanent and the amount indexed for inflation beginning after 2026.
If tuition assistance is already an employee benefit in your organization, read the cap carefully. The $5,250 is combined, covering tuition reimbursement and loan repayment together, so an employee who spends $4,000 on coursework has $1,250 left for loan payments. Decide how the cap gets allocated and put it in writing before someone plans a semester around the wrong number.
Build a Financial Wellness Program That Fits Your Workforce
If student debt is showing up in your exit interviews or your hardship withdrawal reports, treating qualified student loan payments as eligible for employer matching contributions can help employees save for retirement while paying off their debt. At the same time, an emergency savings account can help employees feel they can better manage some of their month-to-month financial stress.
Taken together, these programs can help round out your employee benefit plan and strengthen your retention strategies.
For nearly 30 years, Business Benefits Group has been helping employers with the design, placement, and administration of their employee benefits programs. Contact us today to discuss how we can help you incorporate these programs into your financial wellness strategy.