Designing Employee Benefits to Address Educational Debt

Confero Magazine Winter 2021

Michelle Capezza, Member of the Firm in the Employee Benefits and Health Care & Life Sciences practices, in the firm’s New York office, authored an article in Confero Magazine, titled “Designing Employee Benefits to Address Educational Debt.”

Following is an excerpt (see below to download the full PDF):

Since last writing about employer-provided educational debt programs in the Fall 2018 issue of Confero in the article entitled “Designing Employee Benefits to Address Educational Debt” (reproduced below), there have been several developments. For example, the Coronavirus Aid, Relief, and Economic Security Act of 2020 (CARES Act) provided student loan relief by suspending federal student loan payments (which was extended twice to January 2021, with payments resuming in February 2021). The CARES Act also expanded Section 127 of the tax code through December 31, 2020 to allow employers to provide tax-advantaged payments, excludible from an employee’s gross income under a qualified educational assistance plan, toward employees’ student loans up to an overall $5,250 for the calendar year for all qualified educational expenses. Thus, under those temporary provisions for qualified educational assistance plans, an employer could provide payment of the principal or interest on any qualified higher education loans as defined in Section 221(d)(1) of the tax code for education of the employee. At the end of December 2020, Section 120 of the Taxpayer Certainty and Disaster Tax relief Act of 2020 (under Division EE of the Consolidated Appropriations Act of 2021) extended the tax code provisions to allow employers to provide such qualified educational assistance plan payments toward employees’ student loans through December 31, 2025.

It is also important to note that the Securing a Strong Retirement Act of 2020 (commonly referred to as SECURE Act 2.0), introduced in the House of Representatives October 27, 2020, includes a provision to allow employers to treat an employee’s student loan payments as elective deferrals for purposes of eligibility to receive employer matching contributions in 401(k), 403(b), 457(b) and SIMPLE IRA plans. Thus, if the SECURE Act 2.0 is ultimately enacted into law, employers would be able to design these plans to provide plan participants who are overwhelmed with student debt and unable to save for retirement with employer matching contributions (if applicable) while repaying Confero 21 their student loans. There is also increasing momentum calling for the government to cancel at least a portion of outstanding student loan debts, which exceeds $1.7 trillion in the United States.

These developments will continue to evolve and they must be monitored so that employer programs can be designed or updated accordingly. The extension of the qualified educational assistance plan provisions related to payment of student loans may be of particular interest to employers. Moreover, given the growing concern over increasingly unmanageable levels of student loan debt carried by employees, its impact on overall employee health and financial wellness, and an uncertain future where the skills needed to compete for the jobs of tomorrow continues to unfold, employers that design employee benefits to address educational debt will stand out as employers of choice and make an important contribution toward the effort to solve this debt crisis.

What follows is the full reproduction of my 2018 article on this topic, which illustrates how quickly certain issues addressed in that article have become outdated based on the current guidance, but serves as useful history as the topic of student loan debt takes on increased national importance …