QUESTION: We understand that the federal government will soon start making matching contributions to retirement plans for certain individuals. As an employer that maintains a 401(k) plan, what should we know about these contributions, and is any action needed with respect to the plan?
ANSWER: You are referring to the “saver’s match” program, under which the Treasury Department will make matching contributions, up to a specified limit, to retirement savings vehicles (employer plans or IRAs) with respect to qualified retirement contributions made by eligible individuals—generally low- and moderate-income taxpayers. (Currently, eligible individuals may receive a tax credit relating to their retirement contributions; the saver’s match replaces this “saver’s credit” for most retirement contributions made for taxable years beginning after December 31, 2026.) Eligible individuals generally will claim the match on their tax returns, with the first payments expected in 2028 with respect to 2027 contributions.
The principal question for 401(k) plan sponsors is whether to accept saver’s match contributions directly from the Treasury Department, as plans are not required to do so. Nor are plans responsible for determining whether a participant qualifies for a match or calculating the amount; those determinations will be made by the individual and the IRS through the tax return process.
In preliminary guidance, the IRS has identified three potential pathways for directing a saver’s match to a retirement plan. In the “automatic match path,” the plan, recordkeeper, or service provider would provide plan-level and participant-level information to the IRS and Treasury, and Treasury would automatically pay saver’s match contributions directly to the plan. The other two paths both involve the use of a conduit IRA, with the saver’s match rolled over into the recipient plan either through advance registration by the plan or as initiated by the individual.
In general, saver’s match amounts that are rolled over into an employer-sponsored 401(k) plan are treated like any other rollover contribution. Saver’s match contributions made directly to a 401(k) plan by Treasury, however, are subject to various special requirements. These direct contributions will generally be treated as elective deferrals for most purposes, including direct rollover rights, the limit for involuntary cash-out distributions, plan loan limits, and required minimum distributions. However, saver’s match contributions are not counted toward elective deferral or catch-up contribution limits, are disregarded for nondiscrimination testing, and cannot be distributed on account of hardship or unforeseeable emergency (but may be available for other types of special distributions). Also, a recovery tax may apply in the event of certain early distributions. Thus, plans must separately account for directly received saver’s match contributions. In addition, plans receiving direct Treasury payments will have special Form 5500 reporting obligations, and those subject to ERISA must describe the program in SPDs or SMMs.
A plan that accepts direct Treasury payments must be amended to permit them. This is a discretionary amendment, generally due by the end of the plan year in which the plan begins accepting the direct payments. The plan may impose reasonable acceptance conditions, such as limiting direct saver’s match contributions to currently employed participants or participants with plan account balances. It may also be amended prospectively to stop accepting direct saver’s match contributions without violating the anti-cutback rules. Plans that already accept rollovers generally would not need to be amended to accept rollovers of saver’s match contributions from conduit vehicles.
No immediate plan amendment or operational change is required; as a practical matter, plans will not need to receive saver’s match amounts before 2028. However, plan sponsors should begin discussing the alternatives with recordkeepers and other service providers, and, in particular, consider whether the plan will accept direct Treasury payments through the automatic match path (with its additional tracking, reporting, and other requirements) and watch for further guidance before making final implementation decisions.
For more information, see EBIA’s 401(k) Plans manual at Section II.H.2 (“Retirement Savings Contributions Credit, or Matching Contributions for 2027 and Later, for Certain Income-Eligible Plan Participants”).
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