IRS Clarifies Rules for De Minimis Financial Incentives

The primary objective of SECURE 2.0 was to encourage more workers to save for their retirement. A notable provision, referred to as the de minimis financial incentive benefit, can be found in Section 113 of SECURE 2.0.

This provision allows an employer to offer gift cards or other small financial incentives to boost employee participation.

On December 20, 2023, the Internal Revenue Service issued guidance clarifying the rules around when a plan sponsor may offer a de minimis financial incentive.

IRS Notice 2024-2 provides the following guidance:

• The maximum limit on the financial incentive is $250.
• The benefit may only be offered to an employee who has not elected to defer. For example, an employer may offer $250 to any employee who is not deferring if the employee starts deferrals within a certain timeframe (the IRS uses 90 days as an example). 
• The incentive may be offered in installments. For example, $125 when the employee first starts deferring and $125 a year later if the employee is still deferring on the later date.
• The financial incentive may not be paid with plan assets. The amount is included in income and wages and is subject to withholding and reporting as a cash equivalent.
• The de minimis financial incentive applies to both 401(k) and 403(b) plans.

Expanding participation in your company's retirement plan can be easy. To explore creative strategies beyond de minimis incentives, contact your Sentinel representative. We’re here to help find solutions that seamlessly align with your organization’s needs and goals.