On December 20, 2023, the IRS issued Notice 2024-2, which provides question-and-answer guidance on various aspects of the SECURE 2.0 Act. This post focuses on the “de minimis financial incentives” under SECURE 2.0 Act Section 113. (For an overview of SECURE 2.0 for defined contribution plan sponsors, click here.)
Overview of SECURE 2.0 Language on De Minimis Financial Incentives
Section 113 of the SECURE 2.0 Act allows a 401(k) or 403(b) plan to offer a de minimis financial incentive that is not paid from plan assets to employees to participate in the respective retirement plan. This de minimis financial incentive would not violate the contingent benefit rule applicable to a 401(k) plan or the effective opportunity rule applicable to a 403(b) plan.
IRS Guidance on De Minimis Financial Incentives
Notice 2024-2 provides the following guidance on what constitutes a de minimis financial incentive:
- A financial incentive in an amount under $250 will be considered de minimis. As noted in the SECURE 2.0 Act, the de minimis financial incentive cannot be paid from plan assets.
- The de minimis benefit can only be offered to employees who do not currently have a deferral election with the plan.
- Based on the guidance, an employee with a plan account who currently has no deferral election could be offered the de minimis financial incentive.
- The de minimis benefit can be contingent on the employee continuing to defer. Thus, the de minimis incentive can be $100 if an employee begins making deferrals and then another $100 if they are still making deferrals as of a later date.
- A matching contribution can never be a de minimis financial incentive.
- The de minimis financial benefit is subject to existing rules regarding payments to employees. Thus, if the de minimis financial benefit is cash or a gift card it is includable in the employee’s gross income. If the de minimis financial benefit is tangible personal property that satisfies Code Section 132(d), then it could be excluded from gross income.
- The de minimis financial benefit is not considered a plan contribution.
If you have any questions, please reach out to your Faegre Drinker benefits counsel.
The material contained in this communication is informational, general in nature and does not constitute legal advice. The material contained in this communication should not be relied upon or used without consulting a lawyer to consider your specific circumstances. This communication was published on the date specified and may not include any changes in the topics, laws, rules or regulations covered. Receipt of this communication does not establish an attorney-client relationship. In some jurisdictions, this communication may be considered attorney advertising.