What Types of Small Financial Incentives Can 403(b) Plans Now Offer Employees?

Q: I understand that we can now provide small financial incentives to employees who are not participating in our 403(b) plan to encourage them to commence making salary deferrals. Can the Experts define what is “small”?

Kimberly Boberg, Taylor Costanzo, Kelly Geloneck and David Levine, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

A: Fortunately, the Experts do not need to define this, as the IRS recently released Notice 2024-2, which helpfully provides this definition! The amount of the financial incentive, in order to be considered small (or, in IRS language, de minimis), cannot exceed $250 per nonparticipating employee.

It should be noted that this is a cumulative incentive. For example, if a plan sponsor provided a $200 gift card to a nonparticipating employee to commence deferrals and another $200 to that same employee a year later to continue making deferrals, the small, or de minimis, financial incentive rule would be violated, since $400 is greater than $250.

Notice 2024-2 provides other important clarifications regarding this small/de minimis financial incentive, so any plan sponsor considering adding this feature should be well-versed in this section of the notice.

program NOTE: This feature is to provide general information only, does not constitute legal advice and cannot be used or substituted for legal or tax advice.

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