Paying Down Student Loans Through Your 401(k): How the SECURE 2.0 Match Benefit Works for NJ Employees

Many workers have delayed retirement savings while focusing on paying down student loan debt. This often means missing matching contributions available through a 401(k) plan. 

Many employees who contact Brandon J. Broderick tell us they have prioritized student loan payments over retirement contributions because they believed they could not afford both. The SECURE 2.0 helps address that issue for workers whose employers choose to offer the benefit. 

Under the SECURE 2.0 Act, participating employers can now provide matching retirement contributions based on qualifying student loan payments. 

This guide explains which employees are eligible, how employer participation affects access to the benefit, and when to consult an employment lawyer in New Jersey. 

How the SECURE 2.0 Student Loan Match Works for New Jersey Employees

A 401(k) match rewards workers who put their own money into the plan. A worker who contributes 5% of pay gets an employer match, often another 5%, deposited into the retirement account. A worker using the money to repay the debts didn’t receive the employer match. 

Student loan debt remains a major financial challenge. The federal portfolio is nearly $1.7 trillion, with fewer than 40% of borrowers in repayment and almost 25% in default. 

Section 110 of the SECURE 2.0 Act of 2022 changed the arrangement. It lets an employer make a contribution to a worker's retirement plan based on the worker's qualified student loan payments, not only on money the worker puts into the 401(k). The employee continues making student loan payments as usual. The employer treats those qualifying payments as though they were 401(k) contributions and deposits the matching amount into the employee's retirement account. 

The worker builds retirement savings while paying down debt, without splitting the paycheck between the two.

For example, a New Jersey employee earns $70,000 a year and works for an employer that matches retirement contributions up to 5% of pay. The employee pays $3,500 toward qualifying student loans instead of contributing to a 401(k). If the employer offers this benefit, it can still contribute $3,500 to the employee's retirement account. 

The benefit has been available since plan years beginning after Dec. 31, 2023, and the IRS has issued guidance explaining how it works. Many workers who contact our legal team at Brandon J. Broderick assume every employer is required to offer this match, but participation is voluntary. Employees must still meet the plan's eligibility requirements.

Who Qualifies for the 401(k) Student Loan Benefit in New Jersey

The matching system is available through:

• 401(k) plans
• 403(b) plans, commonly used by nonprofit organizations, schools, and hospitals
• Governmental 457(b) plans for public employees
• SIMPLE IRA plans offered by many smaller employers

Many healthcare workers and educators in New Jersey participate in 403(b) or 457(b) systems. These plans often supplement traditional pension and retirement benefits for public employees. 

A qualified payment is one that the employee makes during the plan year on a student loan they are legally responsible for repaying. The loan must have covered qualified higher education expenses for the employee, their spouse, or their dependent.

The legal responsibility to repay the loan is important. For example:

• A co-signer qualifies because they are legally responsible.
• A guarantor doesn’t qualify unless they become responsible after the borrower defaults.
• A parent who voluntarily helps repay a child's student loan, but isn’t legally responsible for it, does not qualify.

The same principle affects unmarried couples and domestic partners. Unless the employee is legally responsible, making payments on a partner's student debt generally doesn’t qualify for the matching contribution. 

The dollar limit ties to the 401(k) contribution cap. The system follows the same annual limit as elective 401(k) deferrals. For 2024, that limit is $23,000, plus catch-up contributions for eligible workers age 50 or older. It’s subject to the employee's compensation and reduced by any direct 401(k) contributions already made. 

Both 401(k) contributions and qualifying student loan payments count toward the same annual limit. In 2024, an employee who contributes $10,000 to a 401(k) can still have up to $13,000 considered for the employer match. 

A payment qualifies when:

• The loan is qualified under federal tax rules.
• The employee is legally responsible for repaying it.
• It was used for qualified higher education expenses for the employee, the employee's spouse, or the employee's dependent.
• The payment was made during the plan year.
• The combined total of qualifying payments and 401(k) contributions stays within the annual contribution limit.

Some payments do not qualify for the benefit. For example, payments made outside the applicable plan year or amounts that exceed the annual contribution limit are not eligible.

Employees also don’t have to choose between making 401(k) contributions and qualifying student loan payments. Both can count toward the employer match, allowing workers to build retirement savings while continuing to pay down student debt. Employers that offer the benefit must follow IRS rules when administering the program.

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Employer Rules for Student Loan Matching in New Jersey

The IRS requires the student loan match to follow the same rate, eligibility rules, and vesting schedule as the regular 401(k) plan. An employer cannot provide a smaller amount or impose a longer vesting schedule than it uses for traditional 401(k) contributions. 

An employee entitled to a 100% match on retirement contributions is entitled to the same 100% on their student debts. Much like unvested stock options, these contributions remain subject to the plan's vesting rules. They may be forfeited if employment ends before they become fully vested. 

The eligibility rules are the same for both types of contributions. If an employee qualifies for the regular 401(k) plan, they must also be eligible for the student loan match. The same rule applies in reverse. Employers cannot limit the benefit to certain loans. If it meets the legal requirements, it must be treated the same regardless of the school or degree program. 

An employee has to certify annually that the payment was made and meets the requirements. The IRS lists the information the certification has to include, including that the loan is a qualified education loan and that the employee made the payment. The employer is permitted to rely on the employee's certification instead of requesting supporting documents. In our experience, some plans include payroll verification to confirm qualifying payments. 

Protections for workers include:

• The match rate has to equal the regular 401(k) rate.
• Vesting follows the same schedule.
• Every eligible employee has to be offered the match.
• The employer cannot restrict it to particular schools or degrees.
• The worker certifies the payment, and any extra documentation isn’t required.

Employers have flexibility on timing. Contributions can be made once a year or more frequently. Employers are also allowed to set reasonable deadlines for employees to report qualifying installments, such as March 31 for payments made during the previous year.

The IRS also simplified some of the technical rules that apply to 401(k) plans, making it easier for employers to adopt the system. Formal plan amendments aren’t required until the end of 2026. 

Making the Most of the Retirement and Student Debt Benefit in New Jersey

Many New Jersey workers are employed in industries that commonly offer 401(k), 403(b), or 457(b) retirement plans. For employees with student loan debt, the matching benefit could be a valuable addition if their employer offers it.

The benefit isn’t automatic. Employees should ask HR or the plan administrator whether it is available and make sure they submit any required certification before the plan's deadline each year.

If your employer offers this benefit, it helps to:

• Ask HR or your plan administrator whether your retirement plan includes the benefit.
• Review the plan's rate and vesting schedule.
• Save records of qualifying payments.
• Submit any required certification before the deadline.
• Consider making direct 401(k) contributions if they increase your total employer match.
• Make note of the certification deadline each year.

Employees whose retirement plans do not offer the student loan match can still ask HR or their plan administrator whether the benefit is being considered. Many employers have not yet adopted it, even though the IRS has made implementation easier by providing testing flexibility and allowing plan amendments through the end of 2026. Like any other employer contribution, the money is deposited into the employee's retirement account and generally grows tax-deferred until it is withdrawn.

Most questions about the benefit are resolved through HR or the plan administrator. A legal issue may arise if an employee is wrongly denied or is excluded under eligibility rules that do not comply with IRS requirements.

If you believe you were improperly denied retirement benefits or your employer is not administering its retirement plan fairly, contact us today for a free consultation. 

We can review the facts, explain your rights under the applicable retirement plan rules, and help you understand your legal options.