If student loans are impacting your life, or the life of someone you love, you’ll want to pay attention to this. For the first time, the IRS has addressed a unique interface of student loan debt and 401(k) plans. While this news is a Private Letter Ruling (PLR), meaning it doesn’t reach broadly right now, we think it’s an indication that the millions with student loan debt could be positively impacted sooner than later. In other words, we’re predicting that change is coming.
In the spirit of Tom Peters, author of In Search of Excellence, who said “Celebrate what you want to see more of” we’re here to explain the PLR and cheer along what we see as very positive steps forward.
What’s Really Cool
On August 17th, the IRS published PLR 201833012, addressing, for the first time an interface of student loan debt and 401(k) plans. Recognize a Private Letter Ruling only applies to the person requesting it (and it’s a tedious and expensive process to get a private ruling) and does not affect policy. However, we think it could be a huge mistake not to acknowledge the efforts of the IRS considering the impact of student loan debt on the economy.
The new ruling is the result of a company who recognized employees paying off their student loan debt and the hindrance that the repayment put on their ability to also contribute to a 401(k) plan. The company requested that a rule be modified, so that employees could continue to pay down student debt, and also be eligible for an employer match in their 401(k) plans. The IRS agreed, and PLR 201833012 was initiated.
Prior to the PLR, employees were only eligible for the employer match if they contributed 2% of their income to their 401(k). The employer would match 5% of the employee income… but for employees with student loan debt, that 2% wasn’t happening. Now the employees can pay down their debt and get the match
We commend Abbot Laboratories for requesting this ruling, and the IRS for agreeing to it. This is a significant step in the right direction toward managing the seemingly insurmountable mountain of student loan debt that faces our emerging workforce, and impacts our entire economy.
What’s Not Cool
It might be tempting to focus on the fact that the PLR won’t actually effect anyone other than the company that initiated the request, and can’t be cited by others as support for their own requests. But, like a toddler who is just beginning to learn to share, encouraging right choices might produce more of the same. Let’s not forget, student loan debt is the 2nd highest category for consumer debt; and it’s created a $1.5 trillion economic albatross, threatening to cripple economic growth for both private citizens and at the macro level. So, while we wish that this were a more definitive plan with greater reach, addressing the snowballing issue of student loan debt, we can take notice of a step in the right direction.
LJPR wants to be a part of bringing this out into the open. If we can open dialogue about ways that employers can assist employees with managing student debt and actively preparing for the future, we might be able to collectively create some real solutions. It is entirely possible that we could see a broad, definitive plan to address the educational needs – and debt, of this generation and the ones to come. That might seem like wishful thinking, but we can’t afford to ignore positive signs; we can’t afford to overlook those first shaky steps. We have to celebrate what we want to see repeated. We’ll be advocating our friends in Congress to consider asking the Treasury to take this ruling further and make it available to all employers. Imaging the benefit to millions of framer students in their early career to be able to pay down student debt and save for retirement.
*Student Loan stats taken from https://www.forbes.com/sites/zackfriedman/2018/06/13/student-loan-debt-statistics-2018/#4c1021697310