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:
Important things to remember:
Benefits of using de minimis incentives:
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.