SECURE 2.0 and De Minimis Incentives: What Employers Need to Know

The SECURE 2.0 Act, signed into law in December 2022, brings a wave of changes to the world of retirement savings. One provision that employers should pay close attention to is the introduction of de minimis incentives to encourage employee participation in retirement plans such as a 401(k) or 403(b). A recent notice from the IRS answers some questions regarding the use of incentives to increase plan participation, among other guidance.

What are de minimis incentives?

Simply put, these are small gifts or rewards offered to employees who enroll in a workplace retirement plan. The aim is to nudge them towards saving for their future without significantly impacting the plan’s finances.

What are the IRS limits under SECURE 2.0?

The good news for employers is that SECURE 2.0 removes the uncertainty surrounding de minimis incentives by setting a clear limit of $250 per employee, per year. This means you can offer gifts or rewards up to this value without any tax implications for the employee or the plan.

Examples of de minimis incentives under the $250 limit:

Gift cards to popular retailers or coffee shops
Company merchandise like branded water bottles or t-shirts
Charitable donations made in the employee’s name
Raffle entries for prizes like electronics or travel vouchers

Important things to remember:

The $250 limit applies per employee, per year. You can offer smaller incentives more frequently throughout the year, as long as the total does not exceed $250.
Incentives cannot be paid for with plan assets. They must come from the employer’s general funds.
Incentives can only be offered to new enrollees, not existing participants.
While the IRS has set a limit, it is always best to consult with a financial advisor or tax professional to ensure your incentive program complies with all applicable regulations.

Benefits of using de minimis incentives:

Increased participation: Studies show that even small incentives can significantly boost employee enrollment in retirement plans.
Improved financial well-being: Encouraging retirement savings can lead to a more financially secure workforce.
Enhanced employee morale: Offering incentives shows employees you care about their financial future, which can improve morale and loyalty.

Next Steps

Employers are encouraged to review the entirety of the guidance as it also includes details on other requirements under SECURE 2.0 such as exemptions from mandatory automatic enrollment, distributions for terminal illnesses, safe harbor for correcting errors, Roth contributions, and plan amendments. Employers wishing to offer incentives should develop a clear policy that outlines the types of incentives offered, eligibility criteria, and how employees can claim them. Employers should also inform employees about the incentive program and its benefits, monitor the program’s effectiveness, and adjust as needed.

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