Section 113 is titled “small immediate financial incentives.” This timing detail may help provide sponsors with guidance on what kinds of gifts may fit the exemption, that is, ones a plan participant can enjoy immediately. For example, a t-shirt is an immediate gift, while a promise to get a gift card in the future is not. It’s possible that tickets to events, like sports or concerts may not be “immediate” enough to comply with this new regulation.
The Secure Act 2.0 changed so many aspects of retirement law, it can be hard to keep track. One new change that may be percolating on the proverbial backburner of retirement plan sponsors’ collective attention is the provision that allows those sponsors to give incentives for enrolling. There are good reasons to hesitate before engaging in hoopla on these incentives, some of which include a lack of clarity over details. Sponsors may be confused as to how to comply with this new regulation.
The Secure Act 2.0 at Section 113 made an immediate change to the laws governing retirement plan administration concerning incentives to participate in retirement savings plans. Beginning in 2023, employers could offer financial incentives to increase enrollment in 401(k) or 403(b) plans. The new law also made clear that the incentives could not be funded by plan assets.[1] However, the law as written was not clear as to the limit on those incentives. This is a significant departure from past law. “Before SECURE Act 2.0, even de minimis financial incentives were prohibited under the ‘contingent benefit rule’ that prohibits employers from offering any benefit that is conditioned on an employee's election to defer (or not defer) amounts to a plan (other than matching contributions or certain limited exceptions). De minimis financial incentives also raised potential prohibited transaction concerns under the Internal Revenue Code and ERISA.”[2] Even the section-by-section analysis provided by the U. S. Senate did not make clear what constitutes de minimis, aside from gift cards which they describe as either in “small amounts” or of “low dollar” value.[3]
Employers and legal advisors may be wary of this provision as other regulations with a de minimis exception have caused consternation. For example, federal labor laws concerning paying employees for de minimis amounts of time spent off the clock (like booting up a computer or locking a door) have become unclear. You can see this in a recent Federal Labor Relations Authority matter where the Departments of Education and Agriculture asked for guidance because the application of the de minimis standard on pay has been “’inconsist[ent] and ambigu[ous].’”[4] This perceived inconsistency may cause tension between employers and benefits staff over the extent of when a gift is de minimis.
Aside from gift cards, legal and policy analysts occasionally have suggested t-shirts and water bottles as gifts that might fall within the de minimis limit. How can sponsors determine if their incentives fall within the de minimis limit? Sponsors should always consult their legal and regulatory counsel before considering a course of action where compliance may be unclear. It might also be worthwhile to assess whether Congress will take further action to clarify this provision of the Secure Ac 2.0. In an article for our financial advisor readers we published last month, we noted that Congress is potentially clarifying some portions of the Secure 2.0 Act concerning CITs, with other provisions slated for clarification in the future.[5]
We know that there is often a delay between ordering and receiving corporate gifts like t-shirts and other branded items. For that reason, benefits departments and plan sponsors considering implementing an incentive program may want to consider the nuances in the exception other than a dollar amount. Specifically, section 113 (in the new law) is titled “small immediate financial incentives.” This timing detail may help provide sponsors with guidance on what kinds of gifts may fit the exemption, that is, ones a plan participant can enjoy immediately. For example, a t-shirt is an immediate gift, while a promise to get a gift card in the future is not. It’s possible that tickets to events, like sports or concerts may not be “immediate” enough to comply with this new regulation.
When considering the appropriateness of a gift, it may also be helpful to look at other agencies’ rules on exceptions based on de minimis value. For example, the IRS provides guidance to Federal and State governments on income definition.[6] That guidance states: “In general, a de minimis benefit is one for which, considering its value and the frequency with which it is provided, is so small as to make accounting for it unreasonable or impractical.” The IRS provided some examples, including “office snacks and meals.”
Additionally, gift rules for the federal judiciary may offer some information as well. For judiciary employees, gifts are generally prohibited unless they fall within one of eight exceptions, one of which includes that the gift be less than $50 or the aggregate of all gifts be less than $100. While not officially titled a de minimis exception, this specific amount may help sponsors understand how a court might view an open-ended provision such as the one found in the Secure 2.0. Act.[7]
[1] https://www.bakerlaw.com/alerts/secure-20-act-2022congress-final-gift-2022-retirement-plan-sponsors# and
https://news.bloomberglaw.com/us-law-week/secure-2-0-act-encourages-employers-to-expand-retirement-coverage
[3] https://www.help.senate.gov/imo/media/doc/secure_20sectionbysection.pdf
[4] https://www.flra.gov/decisions/v71/71-190.html. For a full examination, please see https://ideas.dickinsonlaw.psu.edu/cgi/viewcontent.cgi?article=1173&context=dlr
[5] https://www.bcgbenefits.com/blog/secure-act-more-changes-coming
[6] https://www.irs.gov/government-entities/federal-state-local-governments/de-minimis-fringe-benefits
[7] https://www.uscourts.gov/sites/default/files/vol02c-ch06.pdf
These articles are prepared for general purposes and are not intended to provide advice or encourage specific behavior. Before taking any action, Advisors and Plan Sponsors should consult with their compliance, finance and legal teams.
Before leaping into the unknown, we recommend a thorough examination of your plan. Because we are experts in the field, we know the marketplace and know what your existing vendor is capable of offering. Through this examination, we can help you optimize the service you receive.
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