The IRS Abbott Ruling: Everything You Need to Know

Ryan Gardner | July 2, 2019 Employer Insights

The IRS Abbott Ruling: Everything You Need to Know

The IRS’ “Abbott Laboratories ruling,” issued last year, is one of the most consequential decisions around employer-led student loan repayment. Despite that, not everyone knows what it is, what exactly it entails, or what kind of impact it could have across the country, if at all.

If you work in HR and happen to fall into this boat, don’t worry – you’re far from alone. Check out our primer below for everything you need to know about the Abbott ruling.

What is Abbott and the Abbott Ruling?

Abbott Laboratories is a Chicago-based healthcare company that was reported last year to begin introducing a new employee benefit: employer-led student loan assistance for employees.

Abbott’s plan for that benefit calls to make tax-free contributions of 5% to their employees’ 401(k) plans, so long as those employees are paying at least 2% into their student loans at the same time. This is not conditional on those employees making their own 401(k) contributions; Abbott will contribute to employees’ retirement regardless.

The IRS granted their seal of approval to this plan via an official ruling in 2018, codifying it as a new benefit for Abbott employees.

What’s the benefit to the employee?

The growing volume of student loan debt means workers are having to choose between making their monthly loan payments or building their nest egg for retirement. Because the former is more immediate, it often gets the priority. The fact that 40% of American households do not have $400 in savings is a testament to how cash-strapped workers are to make ends meet and how little they have reserved for emergencies – much less for retirement.

The Abbott plan helps ensure that employees are not forced to choose between their student loans and 401(k)s. Those workers can continue to focus on their student debt without fearing that they’re neglecting their retirement at the same time, thanks to their employer contributions.

What does this mean for my company?

Although the ruling narrowly applies to just one company, what makes it important is the larger implications it could have. Either a more expansive IRS ruling or legislation passed by Congress could broaden the Abbott plan to be adopted by employers nationwide.

Alternatively, the Abbott plan can serve as a model for other companies to incorporate as part of their own benefits packages, before Congress or the IRS act. Looking to offer some form of student loan assistance, while earning tax exemption status on 401(k) contributions at the same time? Abbott’s plan offers a path forward on that front.

Currently, following on this path, Vault offers Vault Match, our product that makes it easy for employers to allocate unused 401(k) dollars toward employees’ student loan debt. In fact, we pioneered this benefit back in 2016. Contact us below to learn how Vault can implement Vault Match to allocate unused 401(k) dollars toward student loan debt.

Contact us below to learn more how about Vault’s student loan repayment platform can be integrated into your company’s benefits package.