Treasury and IRS start warming up for SECURE 2.0’s saver’s match 

November 5, 2024

 

In Notice 2024-65, the Treasury Department and IRS seek stakeholder feedback about implementing the new saver’s match under the SECURE 2.0 Act of 2022 (Div. T of Pub. L. No. 117-328). Starting in 2027, low- and moderate-income retirement savers can receive saver’s match contributions from the federal government on their first $2,000 in contributions to a defined contribution (DC) plan or individual retirement arrangement (IRA). While employer-sponsored DC plans don’t have to accept saver’s match contributions, the agencies hope to encourage participation by minimizing the costs and burdens on sponsors and their service providers. Although the notice includes questions relevant to both sponsors and individuals claiming the saver’s match, this article focuses on elements of the notice most relevant to sponsors. Treasury and IRS are requesting feedback by Nov. 4, but will consider comments received after that date.

Eligible retirement savers can currently receive a tax credit for contributing to a DC plan or IRA. However, SECURE 2.0 amends the Internal Revenue Code (IRC) to replace this credit with a new saver’s match starting in 2027. Individuals can qualify for the saver’s match by making the following types of “qualified retirement savings contributions”:

• Pre-tax elective deferrals and Roth contributions to a 401(k), 403(b), governmental 457(b), savings incentive match plan for employees of small employers (SIMPLE), or salary reduction simplified employee pension (SARSEP) plan
• Voluntary after-tax contributions to a 401(k) or 403(b) plan
• Contributions to a traditional or Roth IRA

Depending on an individual’s income level and tax filing status, the savers match can be up to 50% of the individual’s first $2,000 of qualified retirement savings contributions (i.e., the most an individual could receive is $1,000 per year). The saver’s match generally must be deposited into a 401(k), 403(b) or governmental 457(b) plan or traditional IRA designated by the individual on their federal income tax return. The match can’t be deposited into a Roth IRA or DC-plan Roth account.

The notice includes a series of questions relevant to developing guidance for sponsors of DC plans that will accept saver’s match contributions and their service providers, as well as potential participant notice requirements for plans that choose not to accept these contributions. Many of these questions ask for input on specific aspects of the saver’s match, but the agencies also seek general feedback on other ways to minimize costs and administrative burdens to encourage retirement plans to accept these contributions, as well as streamlining the process for individuals to claim the saver’s match.

Disclosures to participants. The notice asks several questions concerning disclosures to participants about the saver’s match, including:

• Whether plan administrators should be required to furnish an annual written notice to participants explaining whether the plan will accept the saver’s match
• If plans don’t accept the saver’s match, whether the notice should inform participants that they need to designate a different retirement savings vehicle to receive the match
• For plans that accept the match, how plans should communicate payment information — such as plan account and routing information — to participants and whether there should be a process for plan service providers to furnish this information directly to IRS

Administrative considerations for DC plans. Questions about “practical or administrative considerations” for DC plans receiving saver’s match contributions plans include:

• Whether saver’s match contributions should be transmitted separately for each participant, or if multiple contributions could be aggregated for participants in the same retirement plan or plans using a common trustee, custodian or recordkeeper
• If amounts are aggregated, how IRS should give service providers directions on allocating contributions, including what specific allocation information the agency should provide

Erroneous saver’s match contributions. The agencies seek feedback on avoiding erroneous contributions with the following questions:

• Whether IRS should send information to retirement plans before transmitting saver’s match contributions so administrators can identify potential issues, and if so, how the process should work to minimize burdens on stakeholders and safeguard the privacy of individuals’ information
• How the agencies should treat erroneous saver’s match contributions, including when plans return the contributions to Treasury (which is permitted by the statute)

Recovery tax for early withdrawal. In some situations, participants who receive saver’s match contributions and later take distributions that are subject to the 10% early withdrawal penalty will owe an additional saver’s match recovery tax. Treasury and IRS seek input on several aspects of this tax:

• What guidance is needed on saver’s match contributions included in rollovers and transfers between plans so the recovery tax can be applied to distributions occurring after the rollover or transfer
• If the agencies decide to reduce the amount of a participant’s recovery tax to account for investment losses (which SECURE 2.0 allows but doesn’t require), how the agencies can minimize the burden on plans from determining investment losses (for example, allocating investment losses versus maintaining separate subaccounts for saver’s match)
• What guidance would be helpful to address repayments of early distributions of the saver’s match, which SECURE 2.0 allows so participants can reduce the recovery tax owed
• Whether the method for reporting recontributions of qualified disaster relief distributions could provide a model for reporting recontributions of early distributions of the saver’s match

Miscellaneous issues. Other questions of interest to sponsors and plan administrators include:

• How the agencies can reduce the burden of having to report aggregate saver’s match contributions on Form 5500, Annual Return/Report of Employee Benefit Plan (which SECURE 2.0 requires)
• What considerations the agencies should take into account when evaluating the required content and timing of plan amendments, including amendments for preapproved plans
• What guidance would help DC plans implement SECURE 2.0’s prohibition on making the saver’s match a source for hardship distributions under 401(k) and 403(b) plans or distributions for unforeseeable emergencies under 457(b) plans

The agencies expect to issue further written guidance, publications and updated forms and instructions for saver’s match implementation. However, the notice offers no estimates on the timing for issuance of these materials. SECURE 2.0 also requires Treasury to take steps to increase public awareness of the saver’s match and report to Congress on anticipated promotional efforts by July 1, 2026.

• Notice 2024-65 (IRS, Sept. 5, 2024)
• Div. T of Pub. L. No. 117-328, the SECURE 2.0 Act of 2022 (Congress, Dec. 29, 2022)

• User’s guide to SECURE 2.0 (regularly updated)