On May 22, 2018, the Internal Revenue Service (IRS) issued Private Letter Ruling (PLR) 201833012, which provided approval for an employer to make non-elective contributions to its employees' 401(k) accounts conditioned on the employees making student loan repayments. The non-elective contributions would be similar to employer "matching" contributions to elective contributions that the employees might otherwise make to the 401(k) plan.

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In the PLR, the IRS ruled that the company's amendment of its 401(k) plan to provide non-elective contributions that would be contingent on an employee's repayment of student loan debt would not violate the "contingent benefit'" prohibition contained in Internal Revenue Code (Code) Section 401(k)(4)(A) and related regulations. These Code provisions prohibit employers from making other benefits contingent on a participant's making elective deferrals under a 401(k) plan. In the case discussed in the PLR, the IRS said that because the employer's non-elective contributions would be triggered by employees' student loan repayments (and not by elective deferrals under the 401(k) plan), and because the employees who received the contributions would still be eligible to make regular elective contributions into the 401(k) plan, the employer's non-elective contributions would not be conditioned on employees contributing to the 401(k) plan, and the "contingent benefit" rule would therefore not be violated.


According to the Society for Human Resource Management's 2018 Employee Benefits Survey, only about 4% of employers currently offer student loan repayment assistance to their employees. The most significant reason for the dearth of such programs is likely the fact that such benefits are considered taxable income to employees and are not deductible by employers.

Many companies are beginning to recognize how valuable student loan repayment programs can be as both a recruitment and retention tool and have begun attempting to find novel work-arounds. The method described in the PLR provides an interesting approach that not only helps employees to pay off student loan debt, but also helps them save for retirement, and in a manner which utilizes the tax benefits to employees and employers offered under a 401(k) plan.

Although PLRs may not be used as precedent, they suggest how the IRS may approach a given matter in future guidance. As such, this PLR is significant insofar as it may embolden employers to implement programs to assist employees with student loan repayment, particularly when such programs are tied to "matching" non-elective employer contributions into a 401(k) plan.