SECURE 2.0 Permits Small Financial Incentives to Encourage Plan Enrollment

Effective immediately under a provision of the recently-passed SECURE 2.0 retirement reform legislation, employers may offer their employees gift cards or other “de minimis financial incentives” for enrolling in a 401(k) plan.  This post sets forth some compliance points for this new incentive opportunity.

  • Under prior law, matching contributions were the only means by which employers could encourage employees to make elective deferrals. 

Expanding access to retirement plans is one of the overriding goals of SECURE 2.0 (set forth in Division T of the Consolidated Appropriations Act, 2023).  Many employers would like to be able to encourage employees to save for retirement but may not be able to afford an ongoing employer matching contribution.  Section 113 of Division T expands the list of permitted employer incentives by allowing employers to provide a small financial incentive to employees to enroll in a 401(k) plan.  The small incentive may be just enough to get the ball rolling for employees who are otherwise not inclined to take part in a 401(k) plan.

  • The small financial incentive must be paid for by the employer, not the plan itself.

Section 113 makes clear that the employer that sponsors the plan must purchase the gift cards or other small financial incentives.  Plan assets may not be used for this purpose.

  • The gift cards or other small financial incentives will constitute taxable income to employees.

Employer-provided gift cards and other items with a clear cash value are treated as cash for income and employment tax purposes.  The “de minimis fringe” exception that may apply to a water bottle or t-shirt provided to employees does not apply to items with a readily ascertainable cash value.  (See 2023 Publication 15-B, p. 9) If your 401(k) plan’s definition of compensation for contribution purposes does not exclude gift cards, the gift cards are also “compensation” for plan contribution purposes.

  • Keep the dollar amount of the incentive small. 

There is no safe harbor amount for “de minimis” value, and the determination depends upon the facts and circumstances. A gift card of up to $25 probably satisfies the standard and will buy an employee a few cups of coffee or smoothies. Consult a qualified tax advisor if you are considering a more generous incentive.

  • Coordinate with your recordkeeper and third-party administrator on rolling out this feature.

You will need to coordinate with your plan recordkeeper and your third-party administrator to coordinate the small financial incentive with plan enrollment.  Think about how and when you will communicate this benefit to employees and about when and how you will deliver the financial incentive in connection with proof of enrollment in the plan.  It might be a good idea to draft out a timeline for a hypothetical new enrollee, and walk through it with your recordkeeper and third-party administrator before you unveil it to employees.

The above information is a brief summary of legal developments that is provided for general guidance only and does not create an attorney-client relationship between the author and the reader. Readers are encouraged to seek individualized legal advice in regard to any particular factual situation. © 2023 Christine P. Roberts, all rights reserved.

Photo credit: Tye Doring, Unsplash


  1. Incentivizing workers to enroll in plans is a good thing. This latest initiative is a joke. Giving prospects a di minimus gift card hoping to encourage enrollment is hardly an incentive, and especially if the gift results in taxable income. At least a special tax exemption should apply and whatever the insignificant loss of tax revenue, it would be made up in the long run by the promotion of sound retirement and social policy. This sounds like a Pyrrhic victory at best.

  2. This article suggests these diminimis incentives might be effective at prompting individuals to voluntarily enroll in a 401k where the plan sponsor is unable or unwilling to commit to other employer financial support.

    After decades of experience, we know what works in prompting behavior change – and it isn’t SECURE’s misleading projections of retirement income at age 67. It is automatic features, done right. All else is “colored bubbles”.

    However, instead of tchotchkes, why not take the total value of that spend, including the employment taxes that would be avoided, and create a prize-linked employer contribution for non-highly compensated employees who enroll?

    Amazing what a prize linked lotto can accomplish. For example, how many of you are out there today, 1/12/23, buying a mega millions lotto ticket for tomorrow’s drawing for $1.35 Billion?

    1. First, I laud your use of the term tchotchkes, and also it has been proven that adding a lottery element to the drudgery of incremental savings does engage people in a meaningful way. Given how readily people submit themselves to useless email spam in order to get a 10% discount from an online vendor, I think that the gift card incentive will succeed in moving some people into plan enrollment, the question remains how meaningfully, and how long, they will participate.

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