The August Monthly Minute highlights new IRS guidance addressing student loan matching programs, HHS’s increases to civil monetary penalties and Form 5330 paper filing updates.

Matchmaker Guidance: IRS Notice on Student Loan Matching Programs

As reported in the January 2023 Monthly Minute, Section 110 of SECURE 2.0 permits employers to provide matching contributions for employees based on their student loan payments, effective for contributions made for plan years beginning after December 31, 2023. This month, the IRS released guidance in Q&A format in Notice 2024-63 to assist plan sponsors in implementing qualified student loan payment (QSLP) match programs.

The Notice provides clarification on a variety of plan administration issues, including:

• An employee’s maximum annual QSLP for a section 401(k) plan may not exceed the section 402(g) limit ($23,000 for 2024) (or, if lesser, the employee’s compensation) reduced by the employee’s elective deferrals for the year.
• A plan may not include provisions that limit QSLP matches to only certain qualified education loans, such as qualified education loans for an employee’s own education, for a particular degree program, or for attendance at a particular school.
• A QSLP match contributed for a plan year may not be based on a qualified education loan payment that was made during a different plan year.
• A qualified education loan payment is a QSLP only if the certification requirement is satisfied. Certifications must satisfy specific content requirements.
• A plan may establish any reasonable administrative procedures to implement a QSLP match feature. Whether procedures are reasonable is based on all relevant facts and circumstances. Similarly, a plan may establish a single QSLP match claim deadline for a plan year or multiple deadlines, provided that each deadline is reasonable.
• A plan may provide for QSLP matches to be contributed at a different frequency than elective deferral matches.
• A QSLP match feature may be added as a mid-year change to a safe harbor plan, if certain requirements are met.
• Special nondiscrimination testing relief is provided for 401(k) plans that include student loan matching contributions.

The notice applies for plan years beginning after Dec. 31, 2024.

KMK Comment: While the IRS plans to issue proposed regulations providing further guidance on QSLP match programs, plan sponsors may rely on the Notice 2024-63 until the proposed regulations are issued. Plans that currently offer or plan to offer QSLP matching programs should work closely with legal counsel to ensure adherence to this new IRS guidance.

Going Up! HHS Announces SBC, HIPAA, and MSP Penalty Increases

Earlier this month, HHS released its annual inflation-related increases to civil monetary penalties. The adjusted amounts apply to penalties assessed on or after August 8, 2024, if the violation occurred on or after November 2, 2015.

• The penalty for willfully failing to provide a Summary of Benefits and Coverage (SBC) is now $1,406 per failure.
• HIPAA administrative simplification standards for privacy, security, and breach notification have 4 tiers of violations. The indexed penalty amounts for each are as follows:
  • Tier 1 Lack of Knowledge:  $141 (minimum) to $71,162 (maximum); $2,134,831 (annual cap)
  • Tier 2 Reasonable Cause/Not Willful Neglect:  $1,424 (minimum) to $71,162 (maximum); $2,134,831 (annual cap)
  • Tier 3 Willful Neglect/Correct Within 30 Days:  $14,232 (minimum) to $71,162 (maximum); $2,134,831 (annual cap)
  • Tier 4 Willful Neglect/Not After 30 Days:  $71,162 (minimum) to $2,134,831 (maximum); $2,134,831 (annual cap)

• The Medicare Secondary Payer (MSP) statute prohibits a group health plan from “taking into account” the Medicare entitlement of a current employee or a current employee’s spouse/family member. The new indexed amounts for violations are as follows:
  • Penalty for an employer offering incentives to Medicare-eligible individuals not to enroll in a plan that would be primary: $11,524
  • Failure of responsible reporting entities (insurer, TPA, health plan fiduciary) to provide information to HHS identifying situations where the health plan is primary: $1,474

KMK Comment: The penalty adjustments are intended to improve the effectiveness of the penalties and to maintain their deterrent effect. To this end, be sure to review with counsel plan documentation and operations for MSP and SBC compliance, as well as HIPAA policies and procedures (including business associate agreements) to avoid imposition of these increased penalties.

One Is the Loneliest Number (When It Comes to 5330 E-Filing Providers)

Taxpayers must generally file Form 5330, Return of Excise Taxes Related to Employee Benefit Plans, electronically for taxable years ending on or after December 31, 2023, if the filer is required to file at least 10 returns of any type (e.g., W-2s or 1095s) during the calendar year that the Form 5330 is due.  While Form 5330 can be filed electronically through an IRS authorized Form 5330 e-file provider, currently, the IRS has only one authorized e-filing provider for the Form 5330. As a result, filers are permitted to file a paper Form 5330 for the 2024 taxable year. See the IRS explanation for the e-file exclusion here.

KMK Comment: Notwithstanding the fact that the paper filings are permitted due to IRS service provider issues, IRS guidance notes that filers should still document that the reason for not filing electronically is the lack of authorized vendors.