On December 20, 2023 the IRS gave plan sponsors an early Christmas gift of 81 pages of guidance on a myriad of employee benefit plan law changes in the legislation known as SECURE 2.0 (Act) when it issued IRS Notice 2024-02 (Notice). This is the first of a series of blog articles that will discuss such guidance. This article will address the extension of the deadline for making necessary amendments to plans and guidance on de minimis financial incentives to participate in a 401(k) or 403(b) plan.
Extended Amendment Deadline. One of the most significant provisions in the Notice is an extension of the deadline for plan sponsors to adopt amendments required under SECURE 2.0. Under the Act, plan amendments generally had to be made by the end of the 2025 plan year (the 2027 plan year for governmental plans and collectively bargained plans). Plan amendment deadlines under SECURE 1.0, the CARES Act, and the Taxpayer Certainty and Disaster Tax Relief Act of 2020 were also aligned to these new dates. The notice extends the deadline for these plan amendments. Plans still must be operated in accordance with with the law change as of the effective date of the requirement. Only the time to adopt the written amendment has been extended. The new deadline depends on the type of plan and plan sponsor as set forth below:
- For qualified plans sponsored by for profit employers that are not collectively bargained the deadline is extended to December 31, 2026;
- For qualified plans that are collectively bargained the deadline is December 31, 2028;
- For qualified plans thar are governmental plans the deadline is December 31, 2029;
- For 403(b) plans sponsored by tax-exempt organizations that are collectively bargained the deadline is December 31, 2028;
- For 403(b) plans sponsored by public schools the deadline is December 31, 2029;
- For all other 403(b) plans the deadline is December 31, 2026;
- For 457(b) plans sponsored by state or local governmental entities the deadline is the later of December 31, 2029, or, if applicable, the first day of the first plan year beginning more than 180 days after the date of notification by the secretary of the Treasury that the plan was administered in a manner that is inconsistent with the requirements of Section 457.
De minimis Financial Incentive Clarified. The Notice also clarifies the Act’s provision allowing employers to provide de minimis financial incentives to employees to encourage participation in a 401(k) or 403(b) plan. The Notice provides to be de minimis the incentive cannot have a value exceeding $250. There is no mention of this amount being adjusted for inflation in the future. Also, de minimis financial incentives can only be provided to employees for whom an election to defer is not already in effect. Thus, they cannot be used to incentivize participants to increase their already made deferrals. However, it seems that maybe a plan that requires a new deferral election each year (as opposed to having “evergreen” elections) could offer it to anyone who has not yet made their election for the year.
Also, the Notice makes clear that the financial incentive will be considered taxable wages to the employee unless it meets some other exception from income. For example, a gift card is a cash equivalent and would not qualifiy as an excludable de minimis fringe benefit like a Christmas turkey would.
Stay tuned for additional blog articles on other topics covered in the Notice.