Should Plan Sponsors Add Student Loan Matching or Emergency Savings Features?

In Brief:

• SECURE 2.0 expands the retirement plan toolkit for financial wellness. Beyond traditional retirement savings, it gives plan sponsors optional provisions like student loan matching, pension-linked emergency savings accounts, and emergency personal expense distributions to help address employees’ day-to-day financial stress.
• Student loan matching lets employees build retirement savings without pausing loan payments. Employers sponsoring 401(k), 403(b), governmental 457(b), or SIMPLE IRA plans can match qualified student loan payments (QSLPs) as elective deferrals, with matches vesting on the same schedule as the regular match.
• The retention case is strongest with younger employees. 45% of borrowers say a student loan benefit would make them more likely to stay with an employer, rising to 52% among Gen Z.
• Pension-linked emergency savings accounts (PLESAs) target non-highly compensated employees. Contributions are capped at $2,600 for 2026, with at least one fee-free withdrawal allowed per month, though administrative complexity has slowed adoption.
• Emergency personal expense distributions offer a lower-lift alternative. Participants can self-certify one distribution per year, up to $1,000, penalty-free (though still taxable), without employers setting up a new account.
• All three provisions are optional and depend on workforce fit. Plan sponsors should weigh employee demographics against payroll and administrative capacity, and involve their plan advisor, TPA, and legal counsel before amending the plan.

Financial wellness benefits are becoming an important way for employers to attract and retain employees. Traditionally, employers have relied on retirement plans to round out a competitive pay package. According to the Employee Benefit Research Institute (EBRI), that approach is rapidly expanding, with a growing focus on reducing day-to-day financial stress for employees.

Under SECURE 2.0, employers and plan sponsors have several new tools to support those efforts. Student loan matching has received the most attention, but pension-linked emergency savings accounts and emergency personal expense distributions are worth considering too. These provisions are entirely optional, and the right approach depends on the goals of the plan and the needs of its workforce. To help clients, prospects, and others, JLK Rosenberger has provided a summary of the key details below.

Student Loan Matching Contributions

The retention case for student loan matching is fairly strong. A recent survey found that 45% of borrowers would be more likely to stay with an employer offering a student loan benefit. That number climbs to 52% among Gen Z employees, making it a meaningful lever for employers competing for early-career talent.

Here’s how the provision works. Since plan years beginning after December 31, 2023, employers sponsoring 401(k), 403(b), governmental 457(b), or SIMPLE IRA plans can match employees’ qualified student loan payments (QSLPs) as though they were elective deferrals. That means employees are able to keep building retirement savings without pausing loan payments to do it, removing a tradeoff many younger workers have faced for years.

The IRS released Notice 2024-63 to provide guidance on this provision. First, the loan must be a qualified education loan. That generally includes eligible higher education loans for the employee, the employee’s spouse, or the employee’s dependent. Each year, the employee must certify that the payments were made and that they weren’t already matched elsewhere. Matching contributions vest on the same schedule as the plan’s regular match, so sponsors don’t need to build a separate vesting structure just for this feature.

For plan sponsors, nondiscrimination testing was one of the bigger concerns when this provision first passed, since student loan payments aren’t tracked the same way as payroll deferrals. SECURE 2.0 addressed that by letting sponsors test the student loan match separately from the regular match, reducing the odds that adding this feature causes a testing failure elsewhere in the plan.

For 401(k), 403(b), and governmental 457(b) plans, an employee’s maximum QSLPs generally equal the annual Section 402(g) limit, reduced by the employee’s elective deferrals for the year and subject to the employee’s compensation. The Section 402(g) limit is $24,500 for 2026. Different limits and calculations apply to SIMPLE IRA plans.

Pension-Linked Emergency Savings Accounts (PLESAs)

A pension-linked emergency savings account, or PLESA, is a Roth emergency savings account linked to the retirement plan. It is not available to highly compensated employees (HCE), but it gives non-highly compensated employees (NHCE) a place to build emergency funds aside from long-term retirement savings.

Eligibility is based on the prior year’s compensation threshold for HCEs. For 2026, employees earning under $160,000 in 2025 qualify. Contributions are capped at $2,600, indexed for inflation, or a lower amount if the sponsor chooses to set one. If the plan matches regular deferrals, PLESA contributions must be matched at the same rate within the retirement account, not the PLESA account.

For employers offering this benefit, participants are able to withdraw at least once a month, and the first four withdrawals each year come free of fees. It’s important to note that adoption has been slow so far, largely because of the administrative lift, which is worth careful review before committing to this option.

Emergency Personal Expense Distributions

An emergency personal expense distribution is a simpler option, and it doesn’t require setting up a new account. It allows a participant to take one distribution per calendar year from the participant’s retirement plan account to cover an unforeseeable or immediate personal or family financial emergency.

The distribution is limited to the lesser of $1,000 or the amount by which the participant’s vested account balance exceeds $1,000. The process relies on self-certification, so participants are not required to provide documentation up front. They may repay the distribution within three years.  Participants may repay the distribution within three years. During the three calendar years immediately following an emergency personal expense distribution, another distribution generally cannot be treated as an emergency personal expense distribution unless the prior distribution has been repaid or subsequent elective deferrals and employee contributions equal at least the unrepaid amount.

The distribution is exempt from the 10% early withdrawal penalty, but it’s still subject to ordinary income tax.

Should Employers Add These Features?

All three provisions are optional. The right choice depends on a handful of practical factors. Workforce demographics and employee financial needs matter on one side. Administrative complexity and payroll capabilities matter on the other, along with what the internal team can support. For example, student loan matching may provide the greatest value for employers with younger workforces, while emergency savings features may have greater appeal across the organization.

Before adopting any of these provisions, plan sponsors should involve the plan advisor, third-party administrator, and legal counsel. Each feature requires a plan amendment, and implementation may involve changes to payroll processes, participant communications, and ongoing plan administration.

We’re Here to Help

These provisions give employers the option to expand benefit packages offered. However, they don’t need to be added just because they are available. It’s important to review which features, if any, fit a given workforce and talent strategy going forward. If you have questions about the information outlined above or need assistance with your next retirement plan audit, JLK Rosenberger can help. For additional information, call 818-334-8623, or click here to contact us. We look forward to speaking with you soon.