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## Record

- **Collection:** Agency decision
- **Document type:** Agency decision

## Text

HIGHLIGHTS
OF THIS ISSUE




Bulletin No. 2024–2
January 8, 2024

These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.

ADMINISTRATIVE
Notice 2024-7, page 355.

The IRS temporarily suspended the mailing of certain automated reminder notices for unpaid taxes in February 2022,
as announced in IR-2022-31. In 2024, the IRS will resume
mailing these notices for taxable years 2021 and earlier. This
Notice provides automatic relief to eligible taxpayers from
the additions to tax for the failure to pay with respect to
certain income tax returns for 2020 and 2021. For eligible
taxpayers, these additions to tax will be waived or, to the extent previously assessed or paid, will be abated, refunded, or
credited to other outstanding tax liabilities, as appropriate,
for the relief period, which begins on the date the IRS issued
an initial balance due notice or February 5, 2022, whichever
is later, and ends on March 31, 2024.

ADMINISTRATIVE, EMPLOYMENT
TAX, INCOME TAX, SPECIAL
ANNOUNCEMENT
Announcement 2024-3, page 364.

This announcement announces a Voluntary Disclosure Program
for taxpayers to resolve refunds or credits for erroneous Employee Retention Credit claims. The announcement explains
taxpayer eligibility criteria, terms, and procedures for taxpayers
electing to participate in the Voluntary Disclosure Program. The
announcement is intended to provide taxpayers an opportunity
to efficiently resolve their civil tax liabilities under this Voluntary
Disclosure Program and avoid potential litigation.

EMPLOYEE PLANS
Notice 2024-2, page 316.

This notice provides guidance in the form of questions and
answers with respect to certain provisions of the SECURE
2.0 Act of 2022.
Finding Lists begin on page ii.

Notice 2024-3, page 338.

This notice sets forth the 2023 Cumulative List of Changes in
Plan Qualification Requirements for Defined Contribution Qualified Pre-approved Plans (2023 Cumulative List). The 2023 Cumulative List will assist pre-approved plan providers applying
to the Internal Revenue Service (IRS) for opinion letters for
the fourth remedial amendment cycle for defined contribution
qualified pre-approved plans (Cycle 4) under the IRS’s pre-approved plan program. The 2023 Cumulative List identifies recent changes in the qualification requirements of the Internal
Revenue Code that were not taken into account during the
first three remedial amendment cycles for defined contribution
qualified pre-approved plans and that will be taken into account
by the IRS with respect to the form of a plan submitted to the
IRS for Cycle 4. The Cycle 4 submission period begins on
February 1, 2024, and ends on January 31, 2025.

Notice 2024-4, page 343.

This notice sets forth updates on the corporate bond monthly yield curve, the corresponding spot segment rates for
December 2023 used under § 417(e)(3)(D), the 24-month
average segment rates applicable for December 2023, and
the 30-year Treasury rates, as reflected by the application of
§ 430(h)(2)(C)(iv).

Rev. Rul. 2024-1, page 307.

This revenue ruling provides tables of covered compensation
under § 401(l)(5)(E) of the Internal Revenue Code and the Income Tax Regulations thereunder, effective January 1, 2024.

EMPLOYEE PLANS, EXCISE TAX
Notice 2024-1, page 314.

This notice provides the indexing factors to be used by group
health plans and health insurance issuers to calculate the
qualifying payment amount (QPA) for items or services provided on or after January 1, 2024, and before January 1,
2025. The No Surprises Act (NSA) added parallel provisions
at Code sections 9816 and 9817, ERISA sections 716 and

717, and PHS Act sections 2799A-1 and 2799A-2. These
provisions provide protections against balance-billing for certain out-of-network items or services provided to patients.
The QPA is the basis for determining individual cost sharing
for items and services covered by the balance-billing protections in the NSA, under certain circumstances. The QPA
for a given calendar year is based on information regarding
median rates for certain items and services from prior years
and is indexed based on changes in the consumer price index. In addition to providing the indexing factor for adjusting
2023 amounts for 2024, the notice also provides cumulative
adjustments for prior years and examples of how to apply the
percentage increases.

EXCISE TAX, INCOME TAX, SPECIAL
ANNOUNCEMENT
Notice 2024-6, page 348.

Notice 2024-6 discusses a method that can be used to
qualify for and calculate the sustainable aviation fuel (SAF)
credit, the Renewable Fuel Standard (RFS) program, and also
discusses other methods. Notice 2024-6 provides RFS safe
harbors to qualify for and calculate the SAF credit and also
informs the public that the current Greenhouse Gases, Regulated Emissions, and Energy Use in Technologies (GREET)
model does not currently meet the applicable requirements
to be used for the SAF credit, but federal agencies are working to modify the GREET model so that it does.

EXEMPT ORGANIZATIONS
Announcement 2024-1, page 363.

Revocation of IRC 501(c)(3) Organizations for failure to meet
the code section requirements. Contributions made to the
organizations by individual donors are no longer deductible
under IRC 170(b)(1)(A).

INCOME TAX
Notice 2024-5, page 347.

This notice provides a safe harbor regarding the incremental
cost of certain qualified commercial clean vehicles placed
in service in calendar year 2024 for purposes of the credit
for qualified commercial clean vehicles under § 45W of the
Internal Revenue Code. This notice also requests comments
regarding additional types or classes of vehicles that should
be included in the safe harbor in the future.

Notice 2024-8, page 356.

This notice provides the optional 2024 standard mileage
rates for taxpayers to use in computing the deductible costs
of operating an automobile for business, charitable, medical,
or moving expense purposes. This notice also provides the
amount taxpayers must use in calculating reductions to basis
for depreciation taken under the business standard mileage

rate, and the maximum standard automobile cost that may
be used in computing the allowance under a fixed and variable rate plan. Additionally, this notice provides the maximum
fair market value of employer-provided automobiles first
made available to employees for personal use in calendar
year 2024 for which employers may use the fleet-average
valuation rule in § 1.61-21(d)(5)(v) or the vehicle cents-permile valuation rule in § 1.61-21(e).

Notice 2024-9, page 358.

The notice of intent to propose regulations concerns the
statutorily-required exceptions to the elective payment
phaseout for entities that do not satisfy the domestic content
requirements of §§ 45, 45Y, 48 and 48E. This notice provides the transitional process by which the IRS will implement
the statutorily-required exceptions to the elective payment
phaseout for entities that do not satisfy the domestic content
requirements of §§ 45, 45Y, 48 and 48E. These transitional
procedures only apply to projects that begin construction prior to January 1, 2025. This notice also requests comments
to inform the development of the forthcoming proposed regulations that will implement the process by which the statutorily-required exceptions will be provided to these phaseouts if
construction begins on or after January 1, 2025.

Notice 2024-11, page 360.

This notice updates Notice 2011-64, 2011-37 I.R.B. 231,
which contains the list of treaties that meet the requirements
of section 1(h)(11)(C)(i)(II) of the Code. It adds the treaty with
Chile, which entered into force on December 19. The list
removes the treaties with Russia and Hungary because both
have ceased to meet the requirements of section 1(h)(11)
after the publication of Notice 2011-64. Notice 2011–64 is
amplified and superseded.

REG-118492-23, page 366.

These proposed regulations would provide guidance to qualified manufacturers of new clean vehicles to comply with rules
regarding excluded entities, as established by the Inflation Reduction Act of 2022 (IRA). Section 30D(d)(7) excludes from
the definition of “new clean vehicle (A) any vehicle placed in
service after December 31, 2024, with respect to which any
of the applicable critical minerals contained in the battery of
such vehicle were extracted, processed, or recycled by a foreign entity of concern (as defined in section 40207(a)(5) of the
Infrastructure Investment and Jobs Act (42 U.S.C. 18741(a)
(5))), or (B) any vehicle placed in service after December 31,
2023, with respect to which any of the components contained
in the battery of such vehicle were manufactured or assembled
by a foreign entity of concern (as so defined). These proposed
regulations would provide guidance for qualified manufacturers for how to comply with these rules.

Rev. Rul. 2024-2, page 311.

Federal rates; adjusted federal rates; adjusted federal longterm rate, and the long-term tax exempt rate. For purposes
of sections 382, 1274, 1288, 7872 and other sections of
the Code, tables set forth the rates for January 2024.

The IRS Mission
Provide America’s taxpayers top-quality service by helping
them understand and meet their tax responsibilities and enforce the law with integrity and fairness to all.

Introduction
The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing official rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, legislation, court decisions, and other items of
general interest. It is published weekly.
It is the policy of the Service to publish in the Bulletin all substantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless otherwise indicated. Procedures relating solely to matters of internal management are not published; however, statements of
internal practices and procedures that affect the rights and
duties of taxpayers are published.
Revenue rulings represent the conclusions of the Service
on the application of the law to the pivotal facts stated in
the revenue ruling. In those based on positions taken in rulings to taxpayers or technical advice to Service field offices,
identifying details and information of a confidential nature are
deleted to prevent unwarranted invasions of privacy and to
comply with statutory requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned

against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B,
Legislation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative
Rulings. Bank Secrecy Act Administrative Rulings are issued
by the Department of the Treasury’s Office of the Assistant
Secretary (Enforcement).
Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbarment and suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

January 8, 2024 

Bulletin No. 2024–2

Part I
Section 401. — Qualified
Pension, Profit-Sharing,
and Stock Bonus Plans
26 CFR 1.401(l)-1: Permitted disparity in employer-provided contributions or benefits

Rev. Rul. 2024-1
This revenue ruling provides tables of
covered compensation under § 401(l)(5)
(E) of the Internal Revenue Code and the
Income Tax Regulations thereunder, for
the 2024 plan year.
Section 401(l)(5)(E)(i) defines covered
compensation with respect to an employee as the average of the contribution and
benefit bases in effect under section 230
of the Social Security Act (“Act”) for each
year in the 35‑year period ending with the
year in which the employee attains Social
Security retirement age.
Section 401(l)(5)(E)(ii) of the Code
states that the determination for any year

CALENDAR
YEAR OF
BIRTH
1907
1908
1909
1910
1911
1912
1913
1914
1915
1916
1917
1918
1919
1920
1921
1922

Bulletin No. 2024–2

preceding the year in which the employee attains Social Security retirement age
shall be made by assuming that there is
no increase in covered compensation after
the determination year and before the employee attains Social Security retirement
age.
Section 1.401(l)-1(c)(34) of the Regulations defines the taxable wage base as
the contribution and benefit base under
section 230 of the Act.
Section 1.401(l)-1(c)(7)(i) defines covered compensation for an employee as the
average (without indexing) of the taxable
wage bases in effect for each calendar year
during the 35-year period ending with the
last day of the calendar year in which the
employee attains (or will attain) Social
Security retirement age. A 35‑year period is used for all individuals regardless
of the year of birth of the individual. In
determining an employee’s covered compensation for a plan year, the taxable wage
base for all calendar years beginning after
the first day of the plan year is assumed to
be the same as the taxable wage base in

ATTACHMENT I
2024 COVERED COMPENSATION TABLE
CALENDAR YEAR OF
SOCIAL SECURITY
RETIREMENT AGE
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987

307

effect as of the beginning of the plan year.
An employee’s covered compensation for
a plan year beginning after the 35-year period applicable under § 1.401(l)‑1(c)(7)(i)
is the employee’s covered compensation
for a plan year during which the 35-year
period ends. An employee’s covered compensation for a plan year beginning before the 35-year period applicable under
§ 1.401(l)-1(c)(7)(i) is the taxable wage
base in effect as of the beginning of the
plan year.
Section 1.401(l)-1(c)(7)(ii) provides
that, for purposes of determining the
amount of an employee’s covered compensation under § 1.401(l)-1(c)(7)(i), a
plan may use tables, provided by the Commissioner, that are developed by rounding
the actual amounts of covered compensation for different years of birth.
For purposes of determining covered
compensation for the 2024 year, the taxable wage base is $168,600.
The following tables provide covered
compensation for 2024.

2024 COVERED
COMPENSATION
TABLE II
$ 4,488
4,704
5,004
5,316
5,664
6,060
6,480
7,044
7,692
8,460
9,300
10,236
11,232
12,276
13,368
14,520

January 8, 2024

CALENDAR
YEAR OF
BIRTH
1923
1924
1925
1926
1927
1928
1929
1930
1931
1932
1933
1934
1935
1936
1937
1938
1939
1940
1941
1942
1943
1944
1945
1946
1947
1948
1949
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963

January 8, 2024

ATTACHMENT I
2024 COVERED COMPENSATION TABLE
CALENDAR YEAR OF
SOCIAL SECURITY
RETIREMENT AGE
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2022
2023
2024
2025
2026
2027
2028
2029
2030

308

2024 COVERED
COMPENSATION
TABLE II
15,708
16,968
18,312
19,728
21,192
22,716
24,312
25,920
27,576
29,304
31,128
33,060
35,100
37,212
39,444
43,992
46,344
48,816
51,348
53,952
56,628
59,268
61,884
64,560
67,308
69,996
72,636
75,180
77,880
80,532
83,244
86,052
91,884
95,172
98,616
101,964
105,264
108,492
111,660
114,744
117,816

Bulletin No. 2024–2

CALENDAR
YEAR OF
BIRTH
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991 and later

Bulletin No. 2024–2

ATTACHMENT I
2024 COVERED COMPENSATION TABLE
CALENDAR YEAR OF
SOCIAL SECURITY
RETIREMENT AGE
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041
2042
2043
2044
2045
2046
2047
2048
2049
2050
2051
2052
2053
2054
2055
2056
2057
2058 and later

309

2024 COVERED
COMPENSATION
TABLE II
120,840
123,792
126,660
129,396
132,036
134,556
136,944
139,284
141,588
143,832
145,956
147,984
149,892
151,656
153,420
155,184
156,864
158,424
159,900
161,340
162,768
163,944
165,096
166,116
167,004
167,736
168,360
168,600

January 8, 2024

ATTACHMENT II
2024 ROUNDED COVERED COMPENSATION TABLE
CALENDAR
2024 COVERED
YEAR OF
COMPENSATION
BIRTH
ROUNDED
1937
$ 39,000
1938 – 1939
45,000
1940
48,000
1941
51,000
1942
54,000
1943
57,000
1944
60,000
1945
63,000
1946 – 1947
66,000
1948
69,000
1949
72,000
1950
75,000
1951
78,000
1952
81,000
1953
84,000
1954
87,000
1955
93,000
1956
96,000
1957
99,000
1958
102,000
1959
105,000
1960
108,000
1961
111,000
1962
114,000
1963
117,000
1964
120,000
1965
123,000
1966
126,000
1967
129,000
1968
132,000
1969
135,000
1970 – 1971
138,000
1972
141,000
1973
144,000
1974 – 1975
147,000
1976
150,000
1977 – 1978
153,000
1979 – 1980
156,000
1981 – 1982
159,000
1983 – 1984
162,000
1985 – 1987
165,000
1988 – 1989
168,000
1990 and later
168,600

January 8, 2024

310

Bulletin No. 2024–2

DRAFTING INFORMATION
The principal author of this notice is
Tom Morgan of the Office of Associate
Chief Counsel (Employee Benefits, Exempt Organizations, and Employment
Taxes). However, other personnel from
the IRS participated in the development
of this guidance. For further information
regarding this notice, contact Mr. Morgan
at 202-317-6700 or Nicholas Fox at 267466-2192 (not toll-free numbers).

Section 1274.—
Determination of Issue
Price in the Case of Certain
Debt Instruments Issued for
Property
(Also Sections 42, 280G, 382, 467, 468, 482, 483,
1288, 7520, 7702, 7872.)

Rev. Rul. 2024-2
This revenue ruling provides various
prescribed rates for federal income tax

Annual
AFR
110% AFR
120% AFR
130% AFR

5.00%
5.50%
6.02%
6.52%

AFR
110% AFR
120% AFR
130% AFR
150% AFR
175% AFR

4.37%
4.81%
5.25%
5.70%
6.58%
7.70%

AFR
110% AFR
120% AFR
130% AFR

4.54%
5.00%
5.46%
5.93%

Bulletin No. 2024–2

purposes for January 2024 (the current
month). Table 1 contains the short-term,
mid-term, and long-term applicable federal rates (AFR) for the current month for
purposes of section 1274(d) of the Internal Revenue Code. Table 2 contains the
short-term, mid-term, and long-term adjusted applicable federal rates (adjusted
AFR) for the current month for purposes
of section 1288(b). Table 3 sets forth the
adjusted federal long-term rate and the
long-term tax-exempt rate described in
section 382(f). Table 4 contains the appropriate percentages for determining the
low-income housing credit described in
section 42(b)(1) for buildings placed in
service during the current month. However, under section 42(b)(2), the applicable
percentage for non-federally subsidized
new buildings placed in service after July
30, 2008, shall not be less than 9%. Table
5 contains the federal rate for determining
the present value of an annuity, an interest
for life or for a term of years, or a remainder or a reversionary interest for purposes of section 7520. Table 6 contains the
deemed rate of return for transfers made
during calendar year 2024 to pooled income funds described in section 642(c)(5)

that have been in existence for less than
3 taxable years immediately preceding
the taxable year in which the transfer was
made. Finally, Table 7 contains the average of the applicable federal mid-term
rates (based on annual compounding) for
the 60-month period ending December 31,
2023, for purposes of section 7702(f)(11).

REV. RUL. 2024-02 TABLE 1
Applicable Federal Rates (AFR) for January 2024
Period for Compounding
Semiannual
Quarterly
Short-term
4.94%
4.91%
5.43%
5.39%
5.93%
5.89%
6.42%
6.37%
Mid-term
4.32%
4.30%
4.75%
4.72%
5.18%
5.15%
5.62%
5.58%
6.48%
6.43%
7.56%
7.49%
Long-term
4.49%
4.47%
4.94%
4.91%
5.39%
5.35%
5.84%
5.80%

311

Monthly
4.89%
5.37%
5.86%
6.34%
4.28%
4.70%
5.12%
5.56%
6.39%
7.44%
4.45%
4.89%
5.33%
5.77%

January 8, 2024

Short-term adjusted AFR
Mid-term adjusted AFR
Long-term adjusted AFR

Annual
3.79%
3.31%
3.44%

REV. RUL. 2024-02 TABLE 2
Adjusted AFR for January 2024
Period for Compounding
Semiannual
3.75%
3.28%
3.41%

Quarterly
3.73%
3.27%
3.40%

Monthly
3.72%
3.26%
3.39%

REV. RUL. 2024-02 TABLE 3
Rates Under Section 382 for January 2024
Adjusted federal long-term rate for the current month
Long-term tax-exempt rate for ownership changes during the current month (the highest of the adjusted federal
long-term rates for the current month and the prior two months.)

3.44%
3.81%

REV. RUL. 2024-02 TABLE 4
Appropriate Percentages Under Section 42(b)(1) for January 2024
Note: Under section 42(b)(2), the applicable percentage for non-federally subsidized new buildings placed in service after
July 30, 2008, shall not be less than 9%.
Appropriate percentage for the 70% present value low-income housing credit
8.04%
Appropriate percentage for the 30% present value low-income housing credit
3.44%

REV. RUL. 2024-02 TABLE 5
Rate Under Section 7520 for January 2024
Applicable federal rate for determining the present value of an annuity, an interest for life or a term of years, or a
remainder or reversionary interest

REV. RUL. 2024-02 TABLE 6
Deemed Rate for Transfers to New Pooled Income Funds During 2024
Deemed rate of return for transfers during 2024 to pooled income funds that have been in existence for less than
3 taxable years

5.20%

3.8%

REV. RUL. 2024-02 TABLE 7
Average of the Applicable Federal Mid-Term Rates for 2023
For purposes of section 7702(f)(11), the average of the applicable federal mid-term rates (based on annual compounding) for the
60-month period ending December 31, 2023, is 2.12%, rounded to 2%.

January 8, 2024

312

Bulletin No. 2024–2

Section 42.—Low-Income
Housing Credit
The applicable federal short-term, mid-term,
and long-term rates are set forth for the month of
January 2024. See Rev. Rul. 2024-02, page 311.

Section 280G.—Golden
Parachute Payments
The applicable federal short-term, mid-term,
and long-term rates are set forth for the month of
January 2024. See Rev. Rul. 2024-02, page 311.

Section 382.—Limitation
on Net Operating Loss
Carryforwards and
Certain Built-In Losses
Following Ownership
Change
The adjusted applicable federal long-term rate
is set forth for the month of January 2024. See Rev.
Rul. 2024-02, page 311.

Section 467.—Certain
Payments for the Use of
Property or Services
The applicable federal short-term, mid-term,
and long-term rates are set forth for the month of
January 2024. See Rev. Rul. 2024-02, page 311.

Section 468.—Special
Rules for Mining and Solid
Waste Reclamation and
Closing Costs
The applicable federal short-term rates are set
forth for the month of January 2024. See Rev. Rul.
2024-02, page 311.

Section 482.—Allocation
of Income and Deductions
Among Taxpayers
The applicable federal short-term, mid-term,
and long-term rates are set forth for the month of
January 2024. See Rev. Rul. 2024-02, page 311.

Section 483.—Interest on
Certain Deferred Payments
The applicable federal short-term, mid-term,
and long-term rates are set forth for the month of
January 2024. See Rev. Rul. 2024-02, page 311.

Section 1288.—Treatment
of Original Issue Discount
on Tax-Exempt Obligations
The adjusted applicable federal short-term, midterm, and long-term rates are set forth for the month of
January 2024. See Rev. Rul. 2024-02, page 311.

Section 7520.—Valuation
Tables
The applicable federal mid-term rates are set
forth for the month of January 2024. See Rev. Rul.
2024-02, page 311.

Section 7872.—Treatment
of Loans With BelowMarket Interest Rates
The applicable federal short-term, mid-term,
and long-term rates are set forth for the month of
January 2024. See Rev. Rul. 2024-02, page 311.

Bulletin No. 2024–2

313

January 8, 2024

Part III
26 CFR 54.9816-6T:
Calculating the qualifying
payment amount in 2024
Notice 2024-1
SECTION 1. PURPOSE AND SCOPE
Pursuant to Treas. Reg. § 54.98166T(c), 29 CFR 2590.716-6(c), and 45
CFR 149.140(c), this notice provides the
percentage increase for calculating the
qualifying payment amounts (QPAs) for
items and services furnished during 2024
for purposes of sections 9816 and 9817 of
the Internal Revenue Code (Code), sections 716 and 717 of the Employee Retirement Income Security Act of 1974 (ERISA), and sections 2799A-1 and 2799A-2
of the Public Health Service Act (PHS
Act). These provisions, added by the No
Surprises Act,1 provide protections against
surprise medical bills in certain circumstances. This notice was drafted in consultation with the Departments of Labor
and Health and Human Services. Similar
guidance for items and services furnished
during 2022 and 2023 was published
in Revenue Procedure 2022-11, Notice
2022-11, and Notice 2023-4.2
SECTION 2. BACKGROUND
Under § 54.9816-6T(c), 29 CFR
2590.716-6(c), and 45 CFR 149.140(c),
for an item or service furnished during
2022, plans and issuers must calculate the
QPA by increasing the median contracted
rate (as determined in accordance with
§ 54.9816-6T(b), 29 CFR 2590.716-6(b),

and 45 CFR 149.140(b))3,4 for the same
or similar item or service under such plan
or coverage, on January 31, 2019, by the
combined percentage increase as published by the Department of the Treasury
(Treasury Department) and the Internal
Revenue Service (IRS) to reflect the percentage increase in the Consumer Price
Index for All Urban Consumers (U.S. city
average) (CPI-U) over 2019, the percentage increase over 2020, and the percentage
increase over 2021.5 Pursuant to Revenue
Procedure 2022-11, for items and services
provided on or after January 1, 2022, and
before January 1, 2023, the combined percentage increase to adjust the median contracted rate for the same or similar item
or service under such plan or coverage, on
January 31, 2019, is 1.0648523983.
Under § 54.9816-6T(c)(2), 29 CFR
2590.716-6(c)(2), and 45 CFR 149.140(c)
(2), with respect to a sponsor of a plan or
issuer offering group or individual health
insurance coverage in a geographic region
in which the sponsor or issuer did not offer any group health plan or health insurance coverage in 2019, for the first year
in which the group health plan or group
or individual health insurance coverage
is offered in the region, if the plan or issuer does not have sufficient information
to calculate the median of the contracted
rates for an item or service provided in the
geographic region, the plan or issuer must
determine the QPA pursuant to § 54.98166T(c)(3)(i), 29 CFR 2590.716-6(c)(3)(i),
and 45 CFR 149.140(c)(3)(i) for an item
or service furnished in 2022. For each
subsequent year the group health plan or
group or individual health insurance coverage is offered in the region, the plan or
issuer must calculate the QPA by increas-

ing the QPA determined for items or services provided in the immediately preceding year, by the percentage increase in the
CPI-U over the preceding year.6
Pursuant to § 54.9816-6T(c)(3)(i), 29
CFR 2590.716-6(c)(3)(i), and 45 CFR
149.140(c)(3)(i), for an item or service
furnished during 2022, a plan or issuer
that does not have sufficient information
to calculate the median of the contracted
rates in 2019 for the same or similar item
or service provided in a geographic region
must calculate the QPA by first identifying the rate that is equal to the median of
the in-network allowed amounts for the
same or similar item or service provided
in the geographic region in 2021, determined by the plan or issuer through use
of any eligible database, and then increasing that rate by the percentage increase
in the CPI-U over 2021. Similarly, in the
case of a newly covered item or service
furnished during the first coverage year,
when a plan or issuer does not have sufficient information to calculate the median
of the contracted rates in the first coverage
year for the item or service, the plan or issuer must calculate the QPA by using an
eligible database to determine the rate that
is equal to the median of the in-network
allowed amounts for the same or similar
item or service provided in the geographic
region in the year immediately preceding
the first coverage year, and then increasing
that rate by the percentage increase in the
CPI-U over the preceding year.
Under § 54.9816-6T(c)(3)(ii), 29
CFR 2590.716-6(c)(3)(ii), and 45 CFR
149.140(c)(3)(ii), for an item or service
furnished in a subsequent year (before
the first sufficient information year for the
item or service with respect to the plan or

The No Surprises Act was enacted as Title I of Division BB of the Consolidated Appropriations Act, 2021, Pub. L. 116-260, 134 Stat. 1182 (2020).
Revenue Procedure 2022-11, 2022-3 IRB 449; Notice 2022-11, 2022-14 IRB 939, and Notice 2023-4, 2023-2 IRB 321.
3
For information on the calculation of QPAs in light of the August 24, 2023 decision in Texas Medical Association et al. v. United States Department of Health and Human Services et al., Case
No. 6:22-cv-450-JDK (E.D. Tex.), see FAQs about Consolidated Appropriations Act, 2021 Implementation Part 62 (Oct. 6, 2023), available at https://www.dol.gov/agencies/ebsa/about-ebsa/
our-activities/resource-center/faqs/aca-part-62 and https://www.cms.gov/files/document/faqs-part-62.pdf.
4
The protections against surprise billing additionally apply to health benefits plans offered by carriers under the Federal Employees Health Benefits (FEHB) Act pursuant to 5 U.S.C. 8902(p).
Accordingly, the guidance provided in this notice applies to FEHB carriers to the extent consistent with their contracts. See 5 CFR 890.114.
5
The calculations of the QPAs for anesthesia services, air ambulance services, and certain other items or services furnished during 2022 for which a plan or issuer has sufficient information
to calculate the median of the contracted rates in 2019 differ slightly, but all use the same formula for increasing a base rate by the combined percentage increase as published by the Treasury
Department and the IRS to reflect the percentage increase in the CPI-U over 2019 and subsequent years. See § 54.9816‑6T(c)(1)(iii)-(vii), 29 CFR 2590.716-6(c)(1)(iii)-(vii), and 45 CFR
149.140(c)(1)(iii)-(vii).
6
The calculations of the QPAs for anesthesia services, air ambulance services, and certain other items or services furnished in a subsequent year differ slightly, but all use the same formula
for increasing the indexed median contracted rate determined for the item or service in the immediately preceding year by the percentage increase. See § 54.9816-6T(c)(2)(ii), 29 CFR
2590.716-6(c)(2)(ii), and 45 CFR 149.140(c)(2)(ii).
1
2

January 8, 2024

314

Bulletin No. 2024–2

coverage), the plan or issuer must calculate the QPA by increasing the QPA determined for the item or service for the year
immediately preceding the subsequent
year, by the percentage increase in the
CPI-U over the preceding year.
The percentage increase in the CPI-U
for items and services provided in 2022
over the preceding year is the average
CPI-U for 2021 over the average CPI-U
for 2020. Pursuant to Notice 2022-11, the
percentage increase from 2021 to 2022 is
1.0299772040. The percentage increase in
the CPI-U for items and services provided in 2023 over the preceding year is the
average CPI-U for 2022 over the average
CPI-U for 2021. Pursuant to Notice 20234, the percentage increase from 2022 to
2023 is 1.0768582128.
In the case of a plan or issuer that does
not have sufficient information to calculate the median of the contracted rates for
the same or similar item or service provided in a geographic region and determine
the QPA in accordance with the previously
described methodology because the item
or service is billed under a new service
code, for items or services furnished in
2022 (or for newly covered items and services, during the first coverage year for the
item or service), the plan or issuer must
BASE YEAR OF
QPA ORIGINATION

identify a reasonably related service code
that existed in the immediately preceding
year and calculate the QPA pursuant to
§ 54.9816‑6T(c)(4)(i), 29 CFR 2590.7166(c)(4)(i), and 45 CFR 149.140(c)(4)(i).
Under § 54.9816-6T(c)(4)(ii), 29
CFR 2590.716-6(c)(4)(ii), and 45 CFR
149.140(c)(4)(ii), for an item or service
furnished in a subsequent year (before
the first sufficient information year for
the item or service with respect to such
plan or coverage or before the first year
for which an eligible database has sufficient information to calculate a rate under
§ 54.9816-6T(c)(3)(i), 29 CFR 2590.7166(c)(3)(i), and 45 CFR 149.140(c)(3)(i)
in the immediately preceding year), the
plan or issuer must calculate the QPA by
increasing the QPA determined for the
item or service for the year immediately preceding the subsequent year, by the
percentage increase in the CPI-U over the
preceding year.
SECTION 3. GUIDANCE
The percentage increase in the CPI-U
over a preceding year is calculated by
dividing the average CPI-U for the preceding year by the average CPI-U for the
year immediately prior to the preceding

year. For this purpose, the average CPI-U
for a year is the average of the monthly
CPI-Us published by the Bureau of Labor Statistics of the Department of Labor for the 12-month period ending on
August 31 of each year, rounded to 10
decimal places. The percentage increase
in the CPI-U for items and services provided in 2024 over the preceding year
is the average CPI-U for 2023 over the
average CPI-U for 2022. Pursuant to this
calculation, the percentage increase from
2023 to 2024 is 1.0543149339. Further,
pursuant to this notice, plans and issuers may round any resulting QPAs to the
nearest dollar.
To calculate the adjusted QPA, the prior year’s adjusted QPA is multiplied by
the percentage increase for the most recent year. To simplify this calculation, this
notice provides cumulative percentage increases. To calculate the adjusted QPA for
items and services furnished in 2024, the
“base year” QPA is multiplied by the cumulative percentage increase for the year
the base QPA originated. A plan or issuer
may select their preferred method, but it
must be applied consistently. A plan or issuer is not permitted to use one method for
certain QPAs and a different method for
other QPAs.

PERCENTAGE
INCREASE FOR
QPA FROM 2023
TO 2024

2019

CUMULATIVE
PERCENTAGE
INCREASE FOR QPA
FROM BASE YEAR
TO 2023
1.1466950506

1.0543149339

CUMULATIVE
PERCENTAGE
INCREASE FOR QPA
FROM BASE YEAR
TO 2024
1.2089777165

2021

1.1091394112

1.0543149339

1.1693822450

2022

1.0768582128

1.0543149339

1.1353476955

2023

1.0000000000

1.0543149339

1.0543149339

.01 Adjusting QPAs based on January
31, 2019 rates.
For QPAs calculated by increasing the
median contracted rate for 2019, the QPAs
for items and services furnished in 2024 are
determined by taking the QPAs calculated
for items and services furnished in 2023
and multiplying the 2023 adjusted QPAs
by the percentage increase from 2023 to

2024 (1.0543149339). Alternatively, the
QPAs for items and services furnished in
2024 may be calculated by increasing the
median contracted rate for 2019 by the
2024 cumulative percentage increase for
the 2019 base year (1.2089777165).
For example, using the alternative
method: An item is furnished in 2024. The
median contracted rate for the item on Jan-

uary 31, 2019, was $1,500. The 2024 adjusted QPA for the item can be calculated
by multiplying $1,500 x 1.2089777165,
resulting in $1,813.7
.02 Adjusting QPAs based on 2021
rates.
For items and services furnished in
2022 for which the QPAs were calculated by increasing the median of the in-net-

The 2022 adjusted QPA for the $1,500 item was $1,597 ($1,500 x 1.0648523983). The 2023 adjusted QPA for the item was $1,720 ($1,597 x 1.0768582128). The 2024 adjusted QPA for
the item is $1,813 ($1,720 x 1.0543149339).
7

Bulletin No. 2024–2

315

January 8, 2024

work allowed amounts for the same or
similar item or service provided in the
geographic region in 2021, drawn from
any eligible database, by the percentage
increase from 2021 to 2022, the QPAs for
items and services furnished in 2024 are
determined by taking the QPAs calculated for the items and services furnished in
2022 and multiplying the 2022 adjusted
QPAs by the percentage increase from
2022 to 2023 (1.0768582128) and multiplying the resulting 2023 adjusted QPAs
by the percentage increase from 2023 to
2024 (1.0543149339). Alternatively, the
QPAs for items and services furnished in
2024 may be calculated by multiplying
the 2022 adjusted QPA by the 2024 cumulative percentage increase for the 2021
base year (1.1693822450).
For example, using the alternative
method: A newly covered service for
which the plan or issuer does not have
sufficient information to calculate the median of the contracted rates is furnished
in 2022. The median of the in-network
allowed amounts for the same or similar
service provided in the geographic region
in 2021, drawn from any eligible database, was $4,000. The 2024 adjusted QPA
for the covered service is $4,678 ($4,000
x 1.1693822450).8
.03 Adjusting QPAs based on 2022
rates.
For items and services furnished in
2023 for which the QPAs were calculated
by increasing the median of the in-network
allowed amounts for the same or similar
item or service provided in the geographic
region in 2022, drawn from any eligible
database, by the percentage increase from
2022 to 2023, the QPAs for items and services furnished in 2024 are determined by
taking the QPAs calculated for the items
and services furnished in 2023 and multiplying the 2023 adjusted QPAs by the
percentage increase from 2023 to 2024
(1.0543149339). Alternatively, the QPAs
for items and services furnished in 2024
may be calculated by increasing the median contracted rate for 2022 by the 2024
cumulative percentage increase for the
2022 base year (1.1353476955).

For example, using the alternative
method: A newly covered service for
which the plan or issuer does not have
sufficient information to calculate the median of the contracted rates is furnished
in 2023. The median of the in-network
allowed amounts for the same or similar
service provided in the geographic region
in 2022, drawn from an eligible database,
was $2,100. The 2024 adjusted QPA for
the covered service is $2,384 ($2,100 x
1.1353476955).9
The adjustment to the QPAs will be
applied similarly for items and services
covered by a new plan or new group or
individual health insurance coverage that
was not offered in a geographic region in
a prior year. For items and services first
offered by a new plan or new group or
individual health insurance coverage in a
geographic region in 2023 for which the
plan or issuer does not have sufficient information to calculate the median of the
contracted rates for the items or services
provided in the geographic region, the
QPAs are calculated by increasing the median of the in-network allowed amounts
for the same or similar item or service
provided in the geographic region in
2022, drawn from any eligible database,
by the percentage increase from 2022 to
2023 (1.0768582128). For that plan or
coverage, the QPAs for items and services furnished in 2024 are determined
by taking the QPAs calculated for items
and services furnished in 2023 and multiplying the 2023 adjusted QPAs by the
percentage increase from 2023 to 2024
(1.0543149339).
.04 Calculating QPAs when 2024 is the
first coverage year.
For newly covered items and services
furnished in 2024 for which the plan or
issuer does not have sufficient information, when 2024 is the first coverage year
for the item or service with respect to the
plan or coverage, the QPAs for the items
and services first furnished in 2024 are
determined by multiplying the median
of the in-network allowed amounts for
the same or similar item or service provided in the geographic region in 2023,

drawn from any eligible database, by the
percentage increase from 2023 to 2024
(1.0543149339).
For example, using the alternative
method: A newly covered service is furnished in 2024. The median of the in-network allowed amounts for the same or
similar service provided in the geographic
region in 2023, drawn from an eligible
database, was $3,000. The 2024 adjusted
QPA for the service is $3,163 ($3,000 x
1.0543149339).
SECTION 4. EFFECTIVE DATE
The effective date of this notice is January 1, 2024.
SECTION 5. DRAFTING
INFORMATION
The principal author of this notice is
Jason Sandoval of the Office of Associate Chief Counsel (Employee Benefits,
Exempt Organizations, and Employment
Taxes). For further information regarding
this notice, contact Jason Sandoval at 202317-5500 (not a toll-free number).

Miscellaneous Changes
Under the SECURE 2.0 Act
of 2022
Notice 2024-2
I. PURPOSE
This notice provides guidance in the
form of questions and answers with respect to certain provisions of Division T
of the Consolidated Appropriations Act,
2023, Pub. L. 117-328, 136 Stat. 4459
(2022), known as the SECURE 2.0 Act
of 2022 (SECURE 2.0 Act). Specifically,
this notice addresses issues under the following sections of the SECURE 2.0 Act:
section 101 (expanding automatic enrollment in retirement plans), section 102

The 2022 adjusted QPA for the $4,000 service is $4,120 ($4,000 x 1.0299772040). The 2023 adjusted QPA for the service is $4,437 ($4,120 x 1.0768582128). The 2024 adjusted QPA is
$4,678 ($4,437 x 1.0543149339).
The 2023 adjusted QPA for the $2,100 service is $2,261 ($2,100 x 1.0768582128). The 2024 adjusted QPA is $2,384 ($2,261 x 1.0543149339).

8

9

January 8, 2024

316

Bulletin No. 2024–2

(modification of credit for small employer
pension plan startup costs), section 112
(military spouse retirement plan eligibility
credit for small employers), section 113
(small immediate financial incentives for
contributing to a plan), section 117 (contribution limit for SIMPLE plans), section
326 (exception to the additional tax on
early distributions from qualified plans
for individuals with a terminal illness),
section 332 (employers allowed to replace
SIMPLE retirement accounts with safe
harbor 401(k) plans during a year), section 348 (cash balance), section 350 (safe
harbor for correction of employee elective
deferral failures), section 501 (provisions
relating to plan amendments), section 601
(SIMPLE and SEP Roth IRAs), and section 604 (optional treatment of employer
contributions or nonelective contributions
as Roth contributions).
This notice is not intended to provide
comprehensive guidance as to the specific provisions of the SECURE 2.0 Act, but
rather is intended to provide guidance on
discrete issues to assist in commencing
implementation of these provisions. The
Department of the Treasury (Treasury Department) and the Internal Revenue Service (IRS) continue to analyze the various
provisions of the SECURE 2.0 Act and
anticipate issuing further guidance, including regulations, as appropriate.
II. PROVISIONS OF THE SECURE
2.0 ACT
TABLE OF CONTENTS:
A - Section 101 of the SECURE 2.0 Act
B - Section 102 of the SECURE 2.0 Act
C - Section 112 of the SECURE 2.0 Act
D - Section 113 of the SECURE 2.0 Act
E - Section 117 of the SECURE 2.0 Act
F - Section 326 of the SECURE 2.0 Act
G - Section 332 of the SECURE 2.0 Act
H - Section 348 of the SECURE 2.0 Act
I - Section 350 of the SECURE 2.0 Act
J - Section 501 of the SECURE 2.0 Act
K - Section 601 of the SECURE 2.0 Act
L - Section 604 of the SECURE 2.0 Act
A. SECTION 101 OF THE SECURE
2.0 ACT
Section 101 of the SECURE 2.0 Act
amends the Internal Revenue Code (Code)

Bulletin No. 2024–2

to add new section 414A. Section 414A(a)
generally provides that a cash or deferred
arrangement (CODA) will not be treated
as a qualified CODA described in section 401(k), and an annuity contract otherwise described in section 403(b) that is
purchased under a salary reduction agreement will not be treated as described in
section 403(b), unless the CODA or salary reduction agreement satisfies the automatic enrollment requirements of section 414A(b). Section 414A(b) requires
the CODA or salary reduction agreement
to be an eligible automatic contribution
arrangement (as defined in section 414(w)
(3)) that provides permissible withdrawals
and satisfies certain additional requirements involving default elective contributions and default investments.
Section 414A(c) sets forth several exceptions to the application of section 414A(a). Among other exceptions,
section 414A(c)(2)(A)(i) and (ii) provides
that section 414A(a) does not apply to any
qualified CODA established before the
date of the enactment of section 101 of the
SECURE 2.0 Act (December 29, 2022) or
to any annuity contract purchased under
a plan established before the date of the
enactment of section 101 of the SECURE
2.0 Act. For purposes of this notice, a qualified CODA or section 403(b) plan that is
established before December 29, 2022, is
called a pre-enactment qualified CODA or
pre-enactment section 403(b) plan.
However, section 414A(c)(2)(B) of
the Code provides that, in the case of an
employer adopting a plan maintained by
more than one employer after the date of
the enactment of section 101 of the SECURE 2.0 Act, section 414(c)(2)(A) of
the Code does not apply to that employer,
and section 414A(a) applies with respect
to that employer as if that plan were a single plan.
Section 101(c) of the SECURE 2.0 Act
provides that the amendments made by
section 101 apply to plan years beginning
after December 31, 2024.
Q. A‑1: When is a qualified CODA
established for purposes of determining
whether the qualified CODA is excepted under section 414A(c)(2)(A)(i) of the
Code from the requirements related to
automatic enrollment (that is, whether the
qualified CODA is a pre-enactment qualified CODA)?

317

A. A‑1: For purposes of section 414A(c)
(2)(A)(i), a qualified CODA is established
on the date plan terms providing for the
CODA are adopted initially. This is the
case even if the plan terms providing for
the CODA are effective after the adoption
date. For example, if an employer adopted
a plan that included a qualified CODA on
October 3, 2022, with an effective date of
January 1, 2023, then the qualified CODA
would have been established on October
3, 2022 (that is, before December 29,
2022), even though the qualified CODA
was not effective until after December 29,
2022.
Q. A‑2: If a single employer plan that
includes a pre-enactment qualified CODA
is merged with another plan that includes
a pre-enactment qualified CODA, will the
qualified CODA included in the ongoing plan after the merger be treated as a
pre-enactment qualified CODA?
A. A‑2: Yes. In the case of the merger of two single employer plans, each of
which includes a pre-enactment qualified
CODA, the treatment of the qualified
CODA included in the ongoing plan as
a pre-enactment qualified CODA is unaffected by the merger. The result is the
same if a single employer plan that includes a pre-enactment qualified CODA is
merged with a plan maintained by more
than one employer that includes a pre-enactment qualified CODA.
Q. A‑3: If a plan that includes a qualified CODA that is not a pre-enactment
qualified CODA is merged with a plan
that includes a pre-enactment qualified
CODA, will the qualified CODA included
in the ongoing plan be treated as a pre-enactment qualified CODA after the merger?
A. A‑3: Generally, no. However, if, in
connection with a transaction described
in section 410(b)(6)(C), a single employer plan that includes a qualified CODA
that is not a pre-enactment qualified
CODA is merged with another single
employer plan that includes a pre-enactment qualified CODA, and the plan
that includes the pre-enactment qualified
CODA is designated as the ongoing plan,
then the qualified CODA included in the
ongoing plan continues to be treated as a
pre-enactment qualified CODA after the
merger, provided that the merger occurs
by the end of the section 410(b)(6)(C)
transition period.

January 8, 2024

In addition, if a single employer plan
that includes a qualified CODA that is
not a pre-enactment qualified CODA is
merged into a plan maintained by more
than one employer that includes a pre-enactment qualified CODA, then the qualified CODA included in the ongoing plan
would not be treated as a pre-enactment
qualified CODA with respect to that employer. However, in that case, the merger would not affect whether the qualified
CODA is treated as a pre-enactment qualified CODA with respect to other employers that participate in the ongoing plan.
Q. A‑4: If a plan that includes a qualified CODA is spun‑off from a plan that includes a pre-enactment qualified CODA,
is the qualified CODA included in the new
spun‑off plan also treated as a pre-enactment qualified CODA?
A. A‑4: Generally, yes. If the plan from
which the new plan was spun‑off was
a single employer plan that included a
pre-enactment qualified CODA, then the
qualified CODA included in the spun‑off
plan is also treated as a pre-enactment
qualified CODA. However, if the plan
from which the new plan was spun‑off
was a plan maintained by more than one
employer that was established before December 29, 2022, then the qualified CODA
included in the spun‑off plan is treated as a
pre-enactment qualified CODA only if the
qualified CODA in the plan maintained
by more than one employer was treated
as a pre-enactment qualified CODA with
respect to the employer sponsoring the
spun‑off plan.
Q. A‑5: How do the rules of section 414A(c)(2)(A)(ii) apply to section 403(b) plans?
A. A‑5: In general, the rules of section
414A that apply to qualified CODAs also
apply to section 403(b) plans. However,
under section 414A(c)(2)(A)(ii), a section
403(b) plan is excepted from the requirements of section 414A(a) as a pre-enactment section 403(b) plan if it was established before December 29, 2022, without
regard to the date of adoption of plan
terms that provide for salary reduction
agreements.

Q. A‑6: For plan years beginning after
December 31, 2024, does section 414A(a)
apply to a starter 401(k) deferral‑only arrangement described in section 401(k)(16)
(B) or to a safe harbor deferral‑only plan
described in section 403(b)(16)(B) (which
were added to the Code by section 121
of the SECURE 2.0 Act, applicable to
plan years beginning after December 31,
2023)?
A. A‑6: Generally, yes. Unless an exception set forth in section 414A(c) of
the Code applies (for example, the exception for a new or small business under section 414A(c)(4)(A) or (B)), section 414A(a) applies to a starter 401(k)
deferral-only arrangement or to a safe
harbor deferral-only plan for plan years
beginning after December 31, 2024. Although section 414A(c) sets forth several exceptions to the application of section 414A(a), section 414A(c) does not
include a specific exception for a starter
401(k) deferral‑only arrangement described in section 401(k)(16)(B) or for a
safe harbor deferral‑only plan described
in section 403(b)(16)(B). Similarly, sections 401(k)(16) and 403(b)(16) do not
provide that a starter 401(k) deferral‑only arrangement or a safe harbor deferral‑only plan is treated as satisfying the
requirements of section 414A.
B. SECTION 102 OF THE SECURE
2.0 ACT
Section 102 of the SECURE 2.0 Act
amends section 45E of the Code to provide, for an eligible employer within the
meaning of section 408(p)(2)(C)(i)1: (1)
an increased small employer pension plan
startup cost credit for qualifying small
employers with no more than 50 employees; (2) a new credit based on matching
and nonelective contributions made by
qualifying small employers with no more
than 100 employees; and (3) revised rules
for the disallowance of deductions for certain small employer plan startup costs and
matching and nonelective contributions to
take into account the new credit based on
matching and nonelective contributions.

Section 102(a) of the SECURE 2.0
Act adds new paragraph (e)(4) to section 45E of the Code. Section 45E(e)
(4) provides for an increase in the small
employer pension plan startup cost credit provided under section 45E(a) (startup
costs credit), so that the credit for an eligible employer with no more than 50 employees is increased from 50 percent to
100 percent of the qualified startup costs
paid or incurred by the eligible employer
(increased startup costs credit). A startup costs credit (including the increased
startup costs credit) is available to an
eligible employer for a first credit year
and each of the two taxable years immediately following the first credit year
(together, a 3-year startup costs credit
period), as described in section 45E(b)
and (d)(3) and is subject to a dollar limitation set forth in section 45E(b). Under
section 45E(d)(3), the first credit year is
(1) the taxable year that includes the date
that the eligible employer plan to which
such costs relate becomes effective with
respect to the eligible employer, or (2) at
the election of the eligible employer, the
taxable year preceding the taxable year
that the plan becomes effective.
Section 102(b) of the SECURE 2.0
Act adds new section 45E(f) to the Code.
Section 45E(f) provides for an additional
amount of credit under section 45E based
on employer matching and nonelective
contributions to an eligible employer
plan other than a defined benefit plan
(employer contributions credit). Under
section 45E(f)(1), an eligible employer is
entitled to a credit for a taxable year equal
to a specified applicable percentage of
aggregate employer contributions (other
than any elective deferrals, as defined in
section 402(g)(3)) made by the employer
during the taxable year to an eligible employer plan (other than a defined benefit
plan, as defined in section 414(j)). The
amount of the credit under section 45E(f)
(1) is limited, under section 45E(f)(2)(A),
to no more than $1,000 with respect to
any employee. In addition, under section
45E(f)(2)(C), contributions with respect
to any employee who receives wages, as

1
Under section 408(p)(2)(C)(i)(I), an employer is an eligible employer with respect to any taxable year if the employer had no more than 100 employees who received at least $5,000 of
compensation from the employer for the preceding taxable year. In addition, under section 408(p)(2)(C)(i)(II), an eligible employer that establishes and maintains a plan for one or more years
will be treated as an eligible employer for the two years following the last year the employer was an eligible employer (unless the increase in the employer’s number of employees was due
to an acquisition, disposition, or similar transaction involving the eligible employer).

January 8, 2024

318

Bulletin No. 2024–2

defined under section 3121(a) (that is,
wages for purposes of the Federal Insurance Contributions Act (FICA) (chapter
21 of the Code)), from the employer for
the taxable year in excess of $100,000
(indexed for inflation) are excluded from
the credit amount calculation for the taxable year. Further, under section 45E(f)
(2)(B), the amount determined under section 45E(f)(1) (after applying the section
45E(d)(2)(A) and (C) limitations) is reduced through a credit phase-in formula
by 2 percent for each employee of the
employer for the preceding taxable year
in excess of 50 employees. For purposes of the credit formula in section 45E(f)
(1), section 45E(f)(3) provides that the
applicable percentage is 100 percent for
the first taxable year during which the eligible employer plan is established with
respect to the eligible employer (the first
employer contributions credit taxable
year), 100 percent for the second employer contributions credit taxable year,
75 percent for the third employer contributions credit taxable year, 50 percent for
the fourth employer contributions credit
taxable year, and 25 percent for the fifth
employer contributions credit taxable
year (together, a 5-year employer contributions credit period).
Section 102(c) of the SECURE 2.0
Act amends section 45E(e)(2) of the Code
with respect to the disallowance of deductions for certain small employer plan
startup costs and matching and nonelective contributions to take into account the
new credit under section 45E(f), by providing that no deduction is allowed (1) for
that portion of the qualified startup costs
paid or incurred for the taxable year that
is equal to so much of the portion of the
credit determined under section 45E(a)
as is properly allocable to such costs, and
(2) for that portion of the employer contributions by the employer for the taxable
year that is equal to so much of the credit
increase determined under section 45E(f)
as is properly allocable to such contributions.
Section 102(d) of the SECURE 2.0
Act provides that the amendments to section 45E of the Code made by section 102
of the SECURE 2.0 Act apply to taxable
years beginning after December 31, 2022.
Q. B-1: Is the employer contributions
credit under section 45E(f) of the Code

Bulletin No. 2024–2

treated as a separate credit that is in addition to the startup costs credit under section 45E(a)?
A. B-1: Yes. For example, an eligible employer might be eligible both for
a startup costs credit calculated under
section 45E(a) (as limited by the dollar
limitation in section 45E(b)), and an additional employer contributions credit calculated under section 45E(f)(1) (as limited by the dollar, wage, and credit phase-in
limitations in section 45E(f)(2), but not
the dollar limitation in section 45E(b)).
Q. B-2: When is an eligible employer
plan treated as being established, for purposes of determining the first (and subsequent) employer contributions credit
taxable years during the 5-year employer
contributions credit period for which an
eligible employer can claim an employer
contributions credit under section 45E(f)?
A. B-2: An eligible employer plan is
treated as being established, for purposes
of determining the first (and subsequent)
employer contributions credit taxable
years during the 5-year employer contributions credit period for which an eligible employer is permitted to claim an
employer contributions credit under section 45E(f), on the date the plan becomes
effective with respect to the eligible employer. This determination of the first employer contributions credit taxable year
during the 5-year employer contributions
credit period is similar to the determination of the taxable year that is the first
credit year during the 3-year startup costs
credit period under section 45E(a), as
defined in section 45E(d)(3), except that
an employer is permitted to elect, under
section 45E(d)(3)(B), for the first startup
costs credit year to be the taxable year preceding the taxable year in which the plan
becomes effective with respect to the eligible employer. Thus, an eligible employer may be able to claim both the startup
costs credit and the employer contributions credit beginning with the taxable
year in which the plan becomes effective
with respect to the eligible employer. If
an eligible employer elects, for purposes
of the startup costs credit, for the taxable
year preceding the taxable year in which
the plan becomes effective with respect to
the eligible employer to be the first startup
costs credit year, then the 5-year employer
contributions credit period begins with the

319

second taxable year of the 3-year startup
costs credit period.
Q. B-3: How does a change in an employer’s status as an eligible employer
under section 408(p)(2)(C)(i) due to a
change in the number of the employer’s
employees who received at least $5,000 of
compensation from the employer for the
preceding taxable year affect the employer’s eligibility for the employer contributions credit under section 45E(f) for taxable years during the employer’s 5-year
employer contributions credit period?
A. B-3: An employer is eligible for the
employer contributions credit for a taxable year during the employer’s 5-year
employer contributions credit period only
if (1) the employer was an eligible employer under section 408(p)(2)(C)(i)(I)
for the first employer contributions credit
taxable year during the employer’s 5-year
employer contributions credit period, and
(2) the employer is an eligible employer under section 408(p)(2)(C)(i) for the
taxable year with respect to which the
employer contributions credit is claimed.
Accordingly, if an employer had more
than 100 employees for the taxable year
preceding the first employer contributions
credit taxable year during the employer’s
5-year employer contributions credit period, the employer will not become eligible
for the employer contributions credit for
the first time in a subsequent taxable year,
even if the number of employees who received at least $5,000 of compensation
from the employer drops to 100 or fewer
for a taxable year following the taxable
year preceding the first taxable year in the
employer’s 5-year employer contributions
credit period.
Q. B-4: How does a change in an employer’s status as an eligible employer
under section 408(p)(2)(C)(i) due to a
change in the number of the employer’s
employees who received at least $5,000
of compensation from the employer for
a taxable year that precedes a particular
taxable year during the employer’s 3-year
startup costs credit period affect the employer’s eligibility for (1) the startup costs
credit under section 45E(a) for that particular taxable year or (2) the increased startup costs credit under section 45E(e)(4) for
that particular taxable year?
A. B-4: (1) An employer is eligible
for the startup costs credit under section

January 8, 2024

45E(a) (disregarding the increased startup
costs credit under section 45E(e)(4)) for a
taxable year during the employer’s 3-year
startup costs credit period only if (a) the
employer was an eligible employer under section 408(p)(2)(C)(i)(I) for the first
taxable year during the employer’s 3-year
startup costs credit period, and (b) the employer is an eligible employer under section 408(p)(2)(C)(i) for the taxable year
with respect to which the startup costs
credit is claimed. Accordingly, if an employer had more than 100 employees for
the taxable year preceding the first taxable
year during the employer’s 3-year startup
costs credit period, the employer will not
become eligible for the employer contributions credit for the first time in a subsequent taxable year, even if the number of
employees who received at least $5,000 of
compensation from the employer drops to
100 or fewer for a taxable year following
the taxable year preceding the first taxable
year during the employer’s 3-year startup
costs credit period.
(2) An employer is eligible for the increased startup costs credit under section
45E(e)(4) for a taxable year during the employer’s 3-year startup costs credit period
only if (a) the employer was an eligible
employer under section 408(p)(2)(C)(i)(I),
applied by substituting “50 employees”
for “100 employees,” for the first taxable
year during the employer’s 3-year startup
costs credit period, and (b) the employer is
an eligible employer under section 408(p)
(2)(C)(i), applied by substituting “50 employees” for “100 employees,” for the taxable year with respect to which the startup
costs credit is claimed. Accordingly, if an
employer had more than 50 employees for
the taxable year immediately preceding
the first taxable year during the employer’s 3-year startup costs credit period, the
employer will not become eligible for the
increased startup costs credit under section 45E(e)(4) for the first time in a subsequent taxable year, even if the number
of employees who received at least $5,000
of compensation from the employer drops
to 50 or fewer for a taxable year following
the taxable year preceding the first taxable
year during the employer’s 3-year startup
costs credit period.
Q. B-5: Is it possible for an employer that was eligible for the startup costs
credit under section 45E(a) for a taxable

January 8, 2024

year that began on or before December 31,
2022, to be eligible for the increased startup costs credit under section 45E(e)(4) or
the employer contributions credit under
section 45E(f) for a taxable year that begins after December 31, 2022?
A. B-5: Yes. However, an employer that was eligible for the startup costs
credit under section 45E(a) for a taxable
year that began on or before December
31, 2022, can be eligible for the increased
startup costs credit under section 45E(e)
(4) or the employer contributions credit
under section 45E(f) for a taxable year that
begins after December 31, 2022, only if
there is a taxable year during the employer’s applicable 3- or 5-year credit period
that begins after December 31, 2022. For
example, for an eligible employer with a
calendar year taxable year that maintains
a plan that became effective on January 1,
2021: (1) the 5-year employer contributions credit period began with the eligible
employer’s 2021 taxable year and ends
with the employer’s 2025 taxable year;
and (2) for the three employer contributions credit taxable years in the 5-year
employer contributions credit period that
begin after December 31, 2022, it is possible, if the employer meets the eligibility
requirements described in Q&A B-3 of
this notice, for the employer to be eligible
for an employer contributions credit equal
to the applicable percentage of aggregate
employer contributions set forth in section
45E(f)(1) (75 percent for the 2023 taxable
year, 50 percent for the 2024 taxable year,
and 25 percent for the 2025 taxable year).
Q. B-6: Is an eligible employer permitted to take into account, for purposes of
determining the employer contributions
credit under section 45E(f) for a taxable
year, contributions to an individual who
does not have wages as defined in section
3121(a) in excess of the $100,000 (indexed
for inflation) wage limitation set forth in
section 45E(f)(2)(C) for the taxable year,
even if the individual has earned income
that is not wages as defined in section
3121(a) for the taxable year in excess of
the $100,000 amount or the individual is
a state or local government employee with
remuneration in excess of the $100,000
amount whose services are excluded from
employment under section 3121(b)(7)?
A. B-6: Yes. The $100,000 (indexed
for inflation) wage limitation set forth in

320

section 45E(f)(2)(C), under which no contributions with respect to any individual
who receives wages from the employer
for a taxable year in excess of $100,000
(indexed for inflation) may be taken into
account for purposes of determining employer contributions credits for the taxable year, only applies with respect to an
individual who has wages as defined in
section 3121(a) that are in excess of the
wage limitation for the taxable year. Accordingly, contributions with respect to
an individual who does not have any
wages as defined in section 3121(a) for
a taxable year because the individual is
self-employed (including a partner) or
because the individual is a state or local
government employee whose services are
excluded from employment under section 3121(b)(7) (and, thus, does not have
wages as defined in section 3121(a)) may
be taken into account for purposes of determining employer contributions credits
for the taxable year, even if the individual
has earned income or remuneration from a
state or local government in excess of the
$100,000 wage limitation.
Q. B-7: In which taxable year of an eligible employer is a matching or nonelective contribution made by the employer
to an eligible employer plan taken into
account for purposes of the employer contributions credit under section 45E(f)?
A. B-7: A matching or nonelective
contribution made by an eligible employer to an eligible employer plan is taken
into account for purposes of the employer
contributions credit for the same taxable
year that a deduction under section 404(a)
would apply with respect to the contribution. Thus, an employer is deemed to have
made a matching or nonelective contribution on the last day of the preceding taxable year if the contribution is on account
of that taxable year and is not made later
than the time prescribed by law for filing
the return for that taxable year (including
extensions thereof). See section 404(a)(6).
C. SECTION 112 OF THE SECURE
2.0 ACT
Section 112 of the SECURE 2.0 Act
amends the Code to add new section
45AA, which provides a military spouse
retirement plan eligibility credit for small
employers (section 45AA credit). This

Bulletin No. 2024–2

new credit provides a business credit under section 38 of the Code for an eligible
employer that provides for participation
and benefits to a military spouse under
an eligible defined contribution plan or
plans of the employer (as defined under
section 45AA(e)) within two months after
the military spouse’s date of hire by the
employer.
Section 45AA(a) provides that the section 45AA credit for the taxable year is
equal to the sum of (1) $200 with respect
to each military spouse who is an employee of the employer and who participates in
an eligible defined contribution plan of the
employer at any time during the taxable
year, plus (2) so much of the contributions
made by the employer (other than an elective deferral as defined in section 402(g)
(3)) to all eligible defined contribution
plans with respect to the employee during
the taxable year as do not exceed $300.
Section 45AA(b) provides that, for purposes of the section 45AA credit, a military spouse is only taken into account for
the taxable year which includes the date
on which the spouse began participating
in the eligible defined contribution plan of
the employer and the two succeeding taxable years (3-year credit period).
Section 45AA(c) provides that the
term “eligible small employer” means an
eligible employer as defined in section
408(p)(2)(C)(i)(I), which requires that an
employer have had no more than 100 employees who received at least $5,000 of
compensation from the employer for the
preceding taxable year.
Section 45AA(d) defines a military
spouse as any individual who is married
(within the meaning of section 7703 as
of the first date that the employee is employed by the employer) to an individual
who is a member of the uniformed services (as defined in section 101(a)(5) of
title 10, United States Code) serving on
active duty. For purposes of the credit, an
employer may rely on an employee’s certification that the employee’s spouse is a
member of the uniformed services if the
certification provides the name, rank, and
service branch of the spouse. However,
section 45AA(d)(2) of the Code provides
that a military spouse does not include
any individual who is a highly compensated employee of the employer (within the
meaning of section 414(q)).

Bulletin No. 2024–2

Section 45AA(e) defines an eligible
defined contribution plan as any defined
contribution plan (as defined in section
414(i)) of the eligible small employer if,
under the terms of the plan, (1) military
spouses employed by the employer are
eligible to participate in the plan not later than the date which is two months after the date on which the military spouse
begins employment with the employer,
and (2) military spouses who are eligible to participate in the plan (A) are immediately eligible to receive an amount
of employer contributions under the
plan which is not less than the amount
of contributions that a similarly situated
participant who is not a military spouse
would be eligible to receive under the
plan after two years of service, and (B)
immediately have a nonforfeitable right
to the employee’s accrued benefit derived from employer contributions under the plan.
Section 45AA(f) provides that all persons treated as a single employer under
section 414(b), (c), (m), or (o) will be
treated as one employer for purposes of
section 45AA.
Section 112(e) of the SECURE 2.0 Act
provides that the section 45AA credit applies to taxable years of the employer beginning after December 29, 2022.
Q. C-1: May an employer claim the
section 45AA credit with respect to a military spouse for any taxable year of the
employer within the 3-year credit period
for which the employer does not meet the
requirements of section 408(p)(2)(C)(i)(I)
of the Code?
A. C-1: No. Section 45AA(c) specifies
that the employer must meet the requirements of section 408(p)(2)(C)(i)(I) to be
eligible for the section 45AA credit for a
taxable year. For example, if an employer had no more than 100 employees who
received at least $5,000 of compensation
from the employer for the taxable year
preceding the 2024 taxable year but more
than 100 such employees for the taxable
year preceding both the employer’s 2023
and 2025 taxable years, with respect to a
military spouse whose 3-year credit period begins in the employer’s 2023 taxable
year and ends in the employer’s 2025 taxable year, the employer is eligible for the
section 45AA credit only for the employer’s 2024 taxable year.

321

Q. C-2: May an eligible small employer
claim the section 45AA credit with respect
to a military spouse who participated in a
defined contribution plan of the employer
before the employer amends the plan to
become an eligible defined contribution
plan, or adopts another plan that is an eligible defined contribution plan in which
the military spouse participates?
A. C-2: Yes. If an employer amends the
plan (or adopts another plan) to become
an eligible defined contribution plan, the
employer is eligible for the section 45AA
credit for the employer’s taxable year that
includes the later of the date on which the
plan or amendment becomes effective and
the date on which the military spouse began participating in the plan after it was
amended (or adopted) to become an eligible defined contribution plan and any
of the 2 succeeding taxable years during
which the military spouse participates
in the plan for any period (3-year credit
period). A military spouse’s 3-year credit
period begins from the first date that the
military spouse participates in any eligible
defined contribution plan of the employer. For example, for an eligible small employer that uses the calendar year as the
employer’s taxable year and that amends
a defined contribution plan, effective January 1, 2024, to provide the benefits enumerated in section 45AA(e) to all military
spouses employed by the employer, with
respect to a military spouse who began
participating in the plan on June 15, 2020
(and who has not participated in any other eligible defined contribution plans of
the employer), the employer may claim
a section 45AA credit (of the applicable
amount) for any of the employer’s 2024,
2025, or 2026 taxable years during which
the military spouse participates in the plan
for any period.
Q. C-3: May an eligible small employer claim the section 45AA credit with respect to a military spouse whose 3-year
credit period described in Q&A C-2 of this
notice began during a taxable year of the
employer beginning on or before December 29, 2022?
A. C-3: Yes. The employer is eligible
for the section 45AA credit for any taxable
year of the employer beginning after December 29, 2022 that remains within the
military spouse’s 3-year credit period, as
described in Q&A C-2 of this notice. For

January 8, 2024

example, for an eligible small employer that uses the calendar year as the employer’s taxable year and that adopted a
defined contribution plan that provides the
benefits enumerated in section 45AA(e) to
all employees employed by the employer
and that became effective as of January
1, 2021, with respect to a military spouse
who began participating in the plan within
2 months of the spouse’s date of hire by
the employer on June 15, 2022, the employer may claim a section 45AA credit
(of the applicable amount) for any of the
employer’s 2023 and 2024 taxable years
during which the spouse participates in
the plan for any period.
D. SECTION 113 OF THE SECURE
2.0 ACT
Section 401(k)(4)(A), prior to amendment by section 113(a) of the SECURE
2.0 Act, provided that “a cash or deferred
arrangement of any employer shall not
be treated as a qualified cash or deferred
arrangement if any other benefit is conditioned (directly or indirectly) on the employee electing to have the employer make or not
make contributions under the arrangement
in lieu of receiving cash. The preceding sentence shall not apply to any matching contribution (as defined in section 401(m) of the
Code) made by reason of such an election.”
This provision is commonly referred to as
the contingent benefit rule.
Section 403(b)(12)(A) describes nondiscrimination requirements that apply
to section 403(b) plans under which employees participate pursuant to salary reduction agreements. Section 403(b)(12)
(A)(ii), which is commonly referred to
as the universal availability requirement,
provides that a section 403(b) plan will
satisfy the applicable nondiscrimination
requirements if all employees of the organization may elect to have the employer
make contributions of more than $200
pursuant to a salary reduction agreement
if any employee of the organization may
elect to have the organization make contributions for such contracts pursuant to
such agreement.
Section 1.403(b)-5(b)(2) provides that
an employee is not treated as being permitted to have section 403(b) elective
deferrals contributed on the employee’s
behalf unless the employee is provided an

January 8, 2024

effective opportunity that satisfies the requirements of that paragraph. An effective
opportunity is not considered to exist if
there are any other rights or benefits (other than matching contributions or other
rights or benefits listed in § 1.401(k)-1(e)
(6)(i)) that are conditioned (directly or indirectly) upon the participant making or
failing to make a cash or deferred election
with respect to a contribution to a section
403(b) contract.
Section 113(a) of the SECURE 2.0
Act amended section 401(k)(4)(A) of
the Code to provide that a de minimis financial incentive (not paid for with plan
assets) provided to employees who elect
to have the employer make contributions
under the arrangement in lieu of receiving
cash will not violate the contingent benefit
rule of section 401(k)(4)(A).
Section 113(b) of the SECURE 2.0 Act
amended section 403(b)(12)(A) of the
Code to provide that a plan does not fail to
satisfy section 403(b)(12)(A)(ii) solely by
reason of offering a de minimis financial
incentive (not derived from plan assets) to
employees to elect to have the employer
make contributions pursuant to a salary
reduction agreement.
Section 113(c) of the SECURE 2.0 Act
amended section 4975(d) of the Code to
add a new paragraph (24) under which
the provision of a de minimis financial
incentive described in section 401(k)(4)
(A) is exempted from the tax on prohibited transactions. As a conforming change,
section 113(d) of the SECURE 2.0 Act
amended section 408(b) of the Employee
Retirement Income Security Act of 1974,
Pub. L. 93‑406, 88 Stat. 829, as amended (ERISA), to add a new paragraph (21)
under which the provision of a de minimis financial incentive described in either
section 401(k)(4)(A) or 403(b)(12)(A) of
the Code is exempted from the ERISA
prohibited transaction rules.
Section 113 of the SECURE 2.0 Act
did not specify what would constitute a de
minimis financial incentive described in
section 401(k)(4)(A) or 403(b)(12)(A)(ii)
of the Code. However, legislative history
mentions gift cards in small amounts as
an example of a de minimis financial incentive an employer might offer to boost
employee participation in workplace retirement plans (see H. Rept. 117-283, Part
1 (117 Cong. 2d Sess.) at 86).

322

Section 113 of the SECURE 2.0 Act
is effective for plan years beginning after
December 29, 2022.
Q. D‑1: Is there a limit on the value of
a financial incentive for the incentive to be
a de minimis financial incentive described
in section 401(k)(4)(A) of the Code?
A. D‑1: A financial incentive is a de
minimis financial incentive described in
section 401(k)(4)(A) only if it does not
exceed $250 in value.
Q. D-2: Does the exception to the
contingent benefit rule that is described
in section 401(k)(4)(A) for a de minimis
financial incentive provided to employees who elect to have the employer make
contributions under a CODA apply to an
employee for whom an election to defer is
already in effect?
A. D-2: A de minimis financial incentive is described in section 401(k)(4)(A)
only if it is offered to employees for whom
no election to defer under the CODA is already in effect. Thus, for example, if an
employer announces on February 1, 2024,
that any employee for whom an election
to defer under a CODA is not in effect on
that date and who, within the next 90 days,
makes an election to defer, will receive a
$200 gift card, then the gift card is a de
minimis financial incentive that does not
cause the CODA to fail to be a qualified
CODA on account of the contingent benefit rule of section 401(k)(4)(A). A financial
incentive does not fail to be a de minimis
financial incentive described in section
401(k)(4)(A) merely because the incentive
is provided in the form of installments that
are contingent on the employee’s continuing to defer (even if those installments are
paid over more than one plan year). Thus,
if the employer in the preceding example
provides a $100 gift card (instead of providing a $200 gift card) with a promise to
provide an additional $100 gift card a year
later, but only if the employee continues to
defer at that later date, then the $200 total
amount of gift cards is still a de minimis
financial incentive within the meaning of
section 401(k)(4)(A).
Q. D-3: Can a matching contribution
within the meaning of section 401(m)(4)
be a de minimis financial incentive described in section 401(k)(4)(A)?
A. D-3: No. A matching contribution
cannot be a de minimis financial incentive
described in section 401(k)(4)(A).

Bulletin No. 2024–2

Q. D-4: Is the provision of a de minimis financial incentive described in section 401(k)(4)(A) subject to the rules under the Code that apply with respect to a
plan contribution?
A. D-4: No. A de minimis financial incentive described in section 401(k)(4)(A)
is not subject to the Code rules that apply
to a plan contribution, including the qualification requirements of section 401(a)
and the deductibility timing rules of section 404(a).
Q. D-5: What is an employee’s tax
treatment with respect to a de minimis
financial incentive described in section
401(k)(4)(A) that is provided by an employer?
A. D-5: If an employer provides a de
minimis financial incentive described in
section 401(k)(4)(A) to an employee, that
incentive constitutes remuneration that is
includible in the employee’s gross income
and wages and is subject to applicable
withholding and reporting requirements
for employment tax purposes, unless the
provision of the de minimis financial incentive satisfies an exception under the
Code. For example, the $200 gift card described in Q&A D-2 of this notice is not
excludable from the employee’s gross income as a de minimis fringe benefit within the meaning of section 132(e) and §
1.132-6(c) because, as a cash equivalent,
it is not eligible for that exclusion (and
therefore the gift card is includible in the
employee’s gross income and wages and
is a taxable fringe benefit for employment
tax and reporting purposes unless another
exception applies).
Q. D-6: Do the rules of Q&A D-1
through Q&A D-5 of this notice apply
with respect to a de minimis financial incentive described in section 403(b)(12)
(A) of the Code that is offered to employees to elect to have the employer make
contributions to a section 403(b) plan on
their behalf pursuant to a salary reduction
agreement?
A. D-6: Yes. The statutory provisions
that apply with respect to a de minimis
financial incentive described in section
403(b)(12)(A) are generally the same as

the statutory provisions that apply with
respect to a de minimis financial incentive
described in section 401(k)(4)(A). Accordingly, the rules of Q&A D-1 through
Q&A D-5 of this part D of this notice also
apply with respect to a de minimis financial incentive described in section 403(b)
(12)(A).
E. SECTION 117 OF THE SECURE
2.0 ACT
A SIMPLE IRA plan under section
408(p) or a SIMPLE 401(k) plan under
section 401(k)(11) is a plan under which
employees may elect to have salary reduction contributions (or elective contributions, in the case of a SIMPLE 401(k)
plan) made on their behalf, and which
may only be sponsored by an eligible employer defined in section 408(p)(2)(C)(i)
(that is, generally, an employer who has
100 or fewer employees who received at
least $5,000 of compensation from the
employer for the preceding year). Under
a SIMPLE IRA plan or SIMPLE 401(k)
plan, the employer generally is required
to make either (1) a matching contribution
equal to the employee’s salary reduction
contributions or elective contributions that
do not exceed 3 percent of the employee’s compensation or (2) a nonelective
contribution of 2 percent of the employee’s compensation (regardless of whether
the employee elects to make contributions). Section 116 of the SECURE 2.0
Act amends sections 408(p) and 401(k)
(11) of the Code to permit the employer
to make additional nonelective contributions (up to 10 percent of compensation of
each employee eligible to participate, but
initially limited to $5,000 with respect to
each employee). Under section 408(p)(2)
(D), an employer generally cannot make
contributions to a SIMPLE IRA plan or a
SIMPLE 401(k) plan for a year if the employer maintained another qualified plan
with respect to which contributions were
made or benefits accrued for the period
beginning with the year that the SIMPLE
IRA plan or SIMPLE 401(k) plan was established and ending with the current year.

Notice 98-4, 1998-1 CB 269, provides
guidance regarding SIMPLE IRA plans,
such as guidance on the determination of
the number of employees who received at
least $5,000 of compensation for the preceding year and the required notifications
to employees.
Section 117 of the SECURE 2.0 Act
amends sections 408(p), 401(k)(11), and
414(v) of the Code to increase both the
annual salary reduction contribution/
elective contribution limit and the limit
on additional catch-up contributions beginning at age 50 for a SIMPLE IRA plan
or a SIMPLE 401(k) plan for certain eligible employers. For some of those eligible
employers, the increased limits apply automatically; while other of those eligible
employers must make an election for the
increased limits to apply and must also
make additional employer contributions.
The increased limits are 110 percent of the
otherwise applicable limits for 2024.2
Section 117(h) of the SECURE 2.0 Act
provides that the amendments made by
section 117 of the SECURE 2.0 Act apply
for taxable years beginning after December 31, 2023.
Q. E-1: For which eligible employers
do the increased limits under section 117
of the SECURE 2.0 Act apply?
A. E-1: The increased limits under section 117 of the SECURE 2.0 Act apply to
an eligible employer described in section
408(p)(2)(E)(iv)3 of the Code. An eligible
employer is described in section 408(p)(2)
(E)(iv) if, during the 3-taxable year period
preceding the first year that the employer
maintained the SIMPLE IRA plan or SIMPLE 401(k) plan, the employer (including
any member of the employer’s controlled
group or any predecessor of the employer or any member) has not established or
maintained a qualified plan under section
401(a), a section 403(a) annuity plan, or a
section 403(b) plan under which contributions were made or benefits were accrued
for substantially the same employees as
are eligible to participate in the SIMPLE
IRA plan or SIMPLE 401(k) plan.
Q. E-2: What are the differences in
how the increased limits apply to eligible

2
The annual salary reduction contribution/elective contribution limit for a SIMPLE IRA plan or SIMPLE 401(k) plan for 2023 is $15,500 and the limit on additional catch-up contributions
beginning at age 50 for 2023 is $3,500.
3
Section 408(p)(2)(E)(i)(I) and (II) refer to “an eligible employer described in clause (iii).” There is no description of an eligible employer in clause (iii), but there is a description of eligible
employer in clause (iv).

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employers described in section 408(p)(2)
(E)(iv) depending on the number of employees of the employer?
A. E-2: The increased limits apply automatically in the case of an eligible employer described in section 408(p)(2)(E)
(iv) that has no more than 25 employees
who received at least $5,000 of compensation for the preceding calendar year.
For an employer that has more than 25
employees who received at least $5,000
of compensation for the preceding year,
the increased limits apply only if the employer makes an election for the increased
limits to apply. If the employer makes an
election for the increased limits to apply,
the employer must provide higher matching or nonelective contributions, as described in Q&A E-5 of this notice.
Q. E-3: How are the number of employees who received at least $5,000 of
compensation for the preceding year determined?
A. E-3: The rules set forth in Q&A
B-1 of Notice 98-4 apply for purposes
of calculating the number of employees.
Thus, all employees employed at any time
during the calendar year are taken into account, regardless of whether they are eligible to participate in the SIMPLE IRA
plan or SIMPLE 401(k) plan (including
employees excludable under the rules of
section 410(b)(3) or who have not met the
plan’s minimum eligibility requirements,
as well as self-employed individuals described in section 401(c)(1) who received
earned income from the employer during
the year).
For purposes of determining whether
an employer has no more than 25 employees who received at least $5,000 of compensation for the preceding year, there
generally is a 2-year grace period. Thus, if
an employer that has no more than 25 employees increases the number of employees to more than 25, the employer will still
be treated as having 25 employees for two
years following the last year the employer
had no more than 25 employees (unless
the increase in the employer’s number of
employees was due to an acquisition, disposition, or similar transaction involving
the eligible employer).

Q. E-4: How does an employer reflect
the increased limits?
A. E-4: An employer that must make
an election to apply the increased limits
must take formal written action to make
an election to reflect the increased limits
and should maintain documentation of
the election in the plan’s records. An employer (including employers for whom
the increased limits apply automatically)
must reflect the increased limits in the
plan terms (see section II.J. of this notice
regarding plan amendment deadlines) and
must notify employees of the increased
limits (see Q&A E-6 of this notice).
Q. E-5: If an employer makes an election to apply the increased limits, what
other contributions must be made?
A. E-5: If an employer makes an election under Q&A E-4 of this notice to
apply the increased limits, the employer
must make matching contributions equal
to the employee’s salary reduction contributions or elective contributions that
do not exceed 4 percent (increased from
3 percent) of the employee’s compensation or make a nonelective contribution
of 3 percent (increased from 2 percent) of
the employee’s compensation (regardless
of whether the employee elects to make
contributions).
Q. E-6: Who must an employer notify
of the increased limits?
A. E-6: The employer must notify employees of the increased limits. The notice
must be included in the annual employer
notification that informs employees of
the opportunity to enter into a salary reduction agreement or to modify a prior
agreement. In the case of an employer for
whom the increased limits apply pursuant to an election, the employer also must
notify employees of the increased matching contribution or increased nonelective
contribution. The employer should also
(1) notify the SIMPLE IRA plan’s or
SIMPLE 401(k) plan’s financial institution and payroll provider of the increased
limits, and (2) keep records of all actions
concerning the increased limits. However,
the employer does not need to notify the
IRS of the election to apply the increased
limits.

Q. E-7: What is the deadline for an employer to make the election to apply the
increased limits for a year?
A. E-7: An employer election to apply
the increased limits for a calendar year
must be made before the employer provides the annual notice to each employee
of the employee’s opportunity to enter
into a salary reduction agreement or to
modify a prior agreement for that calendar year, as provided in Q&A G-1 of
Notice 98-4.
Q. E-8: For how long is an employer
election to apply the increased limits effective?
A. E-8: An employer’s election to apply the increased limits is effective until it
is revoked by the employer. The employer
must take formal written action to revoke
the election before the employer provides
the annual notice to each employee of the
employee’s opportunity to enter into a
salary reduction agreement or to modify
a prior agreement for the next calendar
year. The employer should maintain documentation of the revocation in the plan’s
records.
If an employer revokes a prior election
to apply the increased limits, the employer
must also amend the plan terms to reflect
the revocation (see section II.J. of this notice regarding plan amendment deadlines)
and notify employees of the applicable
limits (see generally Q&A E-6 of this notice).
F. SECTION 326 OF THE SECURE
2.0 ACT
Section 72(t)(1) generally imposes a 10
percent additional tax on any distribution
from a qualified retirement plan within
the meaning of section 4974(c), unless
the distribution qualifies for one of the
exceptions listed in section 72(t)(2). Section 326 of the SECURE 2.0 Act amended
section 72(t)(2) of the Code to add a new
exception to the 10 percent additional tax
for any distribution made to a terminally
ill individual.
Section 72(t)(2)(L) permits an employee4 who is a terminally ill individual
to receive a distribution (terminally ill in-

Section 72(t)(5) provides that, for purposes of section 72(t), the term “employee” includes any participant, and in the case of an individual retirement plan, an individual for whose benefit
such plan was established.
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dividual distribution) on or after the date
on which the employee has been certified by a physician as having a terminal
illness. Section 72(t)(2)(L)(ii) provides
that the term “terminally ill individual”
has the same meaning given that term under section 101(g)(4)(A), except that “84
months” is substituted for “24 months.”
Section 72(t)(2)(L)(iii) provides that,
in order to be considered a terminally ill
individual, an employee must furnish sufficient evidence to the plan administrator
in the form and manner as the Secretary
of the Treasury (Secretary) may require.
A terminally ill individual distribution is
includible in gross income but is not subject to the 10 percent additional tax under
section 72(t)(1). Section 72(t)(2)(L)(iv)
provides that a terminally ill individual
distribution may be repaid following rules
similar to repayment of qualified birth or
adoption distributions in section 72(t)(2)
(H)(v).
The amendment made to section 72(t)
(2) by section 326 of the SECURE 2.0 Act
applies to terminally ill individual distributions made after December 29, 2022.
The Treasury Department and the IRS
intend to issue regulations under section 72(t) of the Code, including providing guidance on exceptions under section
72(t)(2) as added by the SECURE 2.0 Act
(such as the exception to the 10 percent
additional tax for an eligible distribution
to a domestic abuse victim).
Questions and Answers Relating to
Terminally Ill Individual Distributions
Q. F-1: What is a terminally ill individual distribution?
A. F-1: The term “terminally ill individual distribution” means any distribution from a qualified retirement plan to an
employee (as defined in section 72(t)(5))
who is a terminally ill individual (within
the meaning of Q&A F-4 of this notice)
that is made on or after the date on which
the employee has been certified by a physician as having a terminal illness. The
certification must satisfy the content requirements in Q&A F-6 of this notice.

Q. F-2: Which types of plans are eligible to permit a terminally ill individual
distribution?
A. F-2: Unlike qualified birth or adoption distributions in section 72(t)(2)(H),
which uses the term “applicable eligible
retirement plan” described in section 72(t)
(2)(H)(vi)(I), section 72(t)(2)(L) does not
include a special definition of retirement
plan. Section 72(t)(1) provides that the 10
percent additional tax applies to any amount
received from a qualified retirement plan
within the meaning of section 4974(c).
Therefore, for purposes of section 72(t)(2)
(L), a terminally ill individual distribution
may be made from a qualified retirement
plan as defined in section 4974(c), which
is defined as a section 401(a) qualified plan
(including a defined benefit plan), section 403(a) annuity plan, section 403(b) annuity contract, or an individual retirement
account described in section 408(a) or an
individual retirement annuity described
in section 408(b).5 Note that, for purposes
of section 72(t)(2)(L), an eligible deferred
compensation plan that is maintained by
an eligible employer described in section 457(e)(1)(A) is not eligible to permit
a terminally ill individual distribution because it is not a qualified retirement plan as
defined in section 4974(c).
Q. F-3: Is a terminally ill individual
distribution subject to the 10 percent additional tax under section 72(t)?
A. F-3: No. Although a terminally ill individual distribution is includible in gross
income, it is not subject to the 10 percent
additional tax under section 72(t)(1).
Q. F-4: Who is a terminally ill individual for purposes of the exception to the 10
percent additional tax under section 72(t)
(2)(L)?
A. F-4: Section 72(t)(2)(L)(ii) provides
that the term “terminally ill individual”
has the same meaning as the term under
section 101(g)(4)(A), except that “84
months” is substituted for “24 months.”
Thus, for purposes of the exception to
the 10 percent additional tax under section 72(t)(2)(L), a terminally ill individual
means an individual who has been certified by a physician as having an illness or

physical condition that can reasonably be
expected to result in death in 84 months or
less after the date of the certification.
Q. F-5: In determining who is a terminally ill individual, how is the term
“physician” defined for purposes of section 72(t)(2)(L)?
A. F-5: The definition of terminally ill
individual under section 72(t)(2)(L) is derived, in part, from the definition of terminally ill individual under section 101(g)(4)
(A). For purposes of section 72(t)(2)(L), a
physician capable of making a certification
is a physician defined in section 101(g)(4)
(D), which has the same meaning as the
term used in section 1861(r)(1) of the Social Security Act (42 USC 1395x(r)(1)).
Thus, for purposes of section 72(t)(2)(L)
of the Code, the term “physician” generally
means a doctor of medicine or osteopathy
that is legally authorized to practice medicine and surgery by the State in which the
doctor performs such function or action.6
Q. F-6: For purposes of section 72(t)(2)
(L), what must be included in a certification of terminal illness from a physician?
A. F-6: A certification of terminal illness from a physician must include the
following:
(1) A statement that the individual’s
illness or physical condition can be reasonably expected to result in death in 84
months or less after the date of certification;
(2) A narrative description of the evidence that was used to support the statement of illness or physical condition (as
described in this F-6 (1));
(3) The name and contact information
of the physician making the statement;
(4) The date the physician examined
the individual or reviewed the evidence
provided by the individual, and the date
that the certification is signed by the physician; and
(5) The signature of the physician making the statement, and an attestation from
the physician that, by signing the form,
the physician confirms that the physician
composed the narrative description based
on the physician’s examination of the individual or the physician’s review of the
evidence provided by the individual.

For purposes of this notice, the term “IRA” includes both an individual retirement account described in section 408(a) and an individual retirement annuity described in section 408(b).
The definition of “State” for purposes of 42 USC 1395x(r)(1) is in 42 USC 410(h), which provides that the term “State” includes the District of Columbia, the Commonwealth of Puerto
Rico, the Virgin Islands, Guam, and American Samoa.
5
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January 8, 2024

As provided in Q&A F-13 of this notice, for purposes of section 72(t)(2)(L)
(iii), it is not sufficient evidence for an
employee who is a physician to certify the
physician’s own terminal illness.
Q. F-7: May a certification be made after an employee receives a terminally ill
individual distribution?
A. F-7: No. For a distribution to be a
terminally ill individual distribution, for
purposes of section 72(t)(2)(L) and Q&A
F-1 of this notice, the distribution must
be made on or after the date a physician
makes the certification that the employee
has a terminal illness.
Q. F-8: Is there a limit on the amount
received as a terminally ill individual distribution?
A. F-8: In general, there is no limit on
the amount that an employee is permitted
to receive as a terminally ill individual
distribution. However, see Q&A F-15 of
this notice for rules on when an employee
may elect to treat an otherwise permissible in-service distribution as a terminally
ill individual distribution.
Q. F-9: May an employee recontribute
a terminally ill individual distribution to a
qualified retirement plan?
A. F-9: Yes. An employee may recontribute any portion of a terminally ill
individual distribution (up to the entire
amount of the terminally ill individual
distribution) to a qualified retirement plan
in which the employee is a beneficiary
and to which a rollover can be made under
sections 402(c), 403(a)(4), 403(b)(8), or
408(d)(3), as applicable. Rules similar to
recontributions of qualified birth or adoption distributions in section 72(t)(2)(H)(v)
apply for purposes of terminally ill individual distributions.7
Questions and Answers Relating to
Qualified Retirement Plans Permitting
Terminally Ill Individual Distributions
Q. F-10: Is a qualified retirement plan
required to permit terminally ill individual
distributions under section 72(t)(2)(L)?
A. F-10: No. It is optional for a qualified retirement plan, including an IRA, to
permit terminally ill individual distribu-

tions pursuant to section 72(t)(2)(L). Plan
amendments adopted to permit terminally
ill individual distributions are discretionary amendments for purposes of the plan
amendment rules discussed in section II.J.
of this notice. To the extent that a qualified
retirement plan does not permit terminally
ill individual distributions, the employee
is permitted to treat an otherwise permissible in-service distribution as a terminally ill individual distribution. See Q&A
F-15 of this notice.
Q. F-11: If an employer chooses to
amend its qualified retirement plan to permit terminally ill individual distributions,
what is the deadline for adopting that
amendment?
A. F-11: For information relating to the
deadline for adopting plan amendments,
see section II.J. of this notice.
Q. F-12: Do terminally ill individual
distributions from a qualified retirement
plan meet the distribution restriction requirements in sections 401(k)(2)(B)(i),
403(b)(7)(A)(i), and 403(b)(11)?
A. F-12: No. Section 72(t)(2)(L) provides an exception to the 10 percent additional tax but does not provide an exception from the distribution restriction
requirements in sections 401(k)(2)(B)(i),
403(b)(7)(A)(i), and 403(b)(11). Therefore, for a plan that is subject to the distribution restriction requirements under
sections 401(k)(2)(B)(i), 403(b)(7)(A)
(i), and 403(b)(11) to permit a terminally
ill individual distribution to an employee
and not violate the distribution restriction requirements, the employee must
otherwise be eligible for a permissible
in-service distribution. Thus, for example, a section 401(k) plan may distribute
a terminally ill individual distribution to
an employee who is otherwise eligible for
a permissible in-service distribution and
meets the requirements of that permissible
in‑service distribution, such as a hardship
distribution or a disability distribution,
without violating the distribution restriction requirements under section 401(k)(2)
(B)(i). However, for the hardship distribution or disability distribution to also meet
the requirements of a terminally ill individual distribution, the distribution must

also meet the applicable requirements in
this notice for a terminally ill individual
distribution, including the content requirement for the certification described
in Q&A F-6 of this notice, the timing requirement for the certification described
in Q&A F-7 of this notice, and the documentation requirement described in Q&A
F-13 of this notice.
Q. F-13: In order for an employee to be
a terminally ill individual for purposes of
section 72(t)(2)(L), what documentation
is required to be provided to a plan administrator under section 72(t)(2)(L)(iii)?
A. F-13: An employee must furnish to
the plan administrator a physician’s certification that certifies that the employee is
a terminally ill individual. A physician’s
certification is sufficient evidence that an
employee is a terminally ill individual.
However, for purposes of section 72(t)(2)
(L)(iii), it is not sufficient evidence for an
employee who is a physician to certify the
physician’s own terminal illness.
Although the certification must meet
the requirements of Q&A F-6 of this notice, as well as this Q&A, it does not need
to include the underlying documentation
upon which the certification is based.
However, the employee should retain both
the underlying documentation and a copy
of the certification for the employee’s tax
records (as required by section 6001).
A plan administrator for purposes of
section 72(t)(2)(L)(iii) is a plan administrator as defined in section 414(g), or an
IRA trustee, custodian, or issuer. However, see Q&A F-15 of this notice for rules
relating to when a qualified retirement
plan does not permit terminally ill individual distributions.
Q. F-14: May a plan administrator rely
on a self‑certification of an employee that
the employee is terminally ill?
A. F-14: No. For a qualified retirement
plan that permits terminally ill individual distributions, section 72(t)(2)(L)(i)
requires that an employee must be certified by a physician as having a terminal
illness. As provided in section 72(t)(2)(L)
(iii), an employee generally will not be
considered terminally ill unless the employee provides sufficient evidence of the

7
Section 311 of the SECURE 2.0 Act amends section 72(t)(2)(H)(v)(I) of the Code to require that an individual who receives a qualified birth or adoption distribution may, at any time during
the 3-year period beginning on the day after the date on which the distribution was received, recontribute the qualified birth or adoption distribution to an applicable eligible retirement plan.
Section 311 of the SECURE 2.0 Act is generally effective for qualified birth or adoption distributions made after December 29, 2022.

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terminal illness to the plan administrator.
The only documentation required to be
provided to the plan administrator is the
certification from a physician that meets
the requirements of Q&As F-6 and F-13
of this notice.
Q. F-15: If a qualified retirement plan
does not permit terminally ill individual
distributions, may an employee treat an
otherwise permissible in-service distribution as a terminally ill individual distribution?
A. F-15: Yes. If a qualified retirement
plan does not permit terminally ill individual distributions and an employee receives
an otherwise permissible in-service distribution that meets the requirements of both
the permissible in-service distribution and
a terminally ill individual distribution,
the employee may treat the distribution
as a terminally ill individual distribution
on the employee’s federal income tax return. As part of the employee’s tax return,
the employee will claim on Form 5329,
Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, that the distribution is a terminally
ill individual distribution, in accordance
with form’s instructions. The employee
must retain the physician’s certification
that meets the requirements of Q&A F-6
and F-13 of this notice in the employee’s
tax files (as required by section 6001) in
case the IRS later requests the certification. The terminally ill individual distribution, while includible in gross income,
is not subject to the 10 percent additional
tax under section 72(t)(1). If the employee decides to recontribute the amount to
a qualified retirement plan, the employee
may recontribute the amount to an IRA.
For example, on May 15, 2024, Participant B, age 50, goes to the doctor and gets
a certification of terminal illness that meets
the requirements of Q&A F-6 of this notice. Participant B’s plan, a section 401(k)
plan, does not permit terminally ill individual distributions but does permit
hardship distributions. On June 10, 2024,
Participant B applies for a hardship distribution in the amount of $15,000. When
Participant B files his tax return, Participant B indicates on Form 5329 that the

distribution is excepted from the 10 percent additional tax as a terminally ill individual distribution under section 72(t)(2)
(L). Participant B retains the physician’s
certification, dated May 15, 2024, with
Participant B’s files as part of Participant
B’s tax returns for tax year 2024. Participant B does not owe the additional $1,500
(representing the 10 percent additional tax
of the amount includible in gross income).
Unlike a hardship distribution, Participant
B may also recontribute the $15,000 to an
IRA following rules similar to qualified
birth or adoption distributions.
G. SECTION 332 OF THE SECURE
2.0 ACT
Under section 408(p)(2)(D), an employer that maintains a SIMPLE IRA plan
for a calendar year generally is not permitted to maintain another plan, contract, pension, or trust described in section 219(g)
(5)(A) or (B) to which contributions were
made or benefits were accrued for service
in the year. Also, prior to amendment by
section 332 of the SECURE 2.0 Act, section 408(d)(3)(G) of the Code provided
that if section 72(t)(6) applied to a distribution (that is, the distribution is from a
SIMPLE IRA within the first two years of
an individual’s participation in the SIMPLE IRA plan), then the individual could
only roll over the distribution to another
eligible retirement plan if the other eligible retirement plan was a SIMPLE IRA.
Section 332(a) of the SECURE 2.0
Act amended section 408(p) of the Code
by adding paragraph (11). Section 408(p)
(11)(A) permits an employer to elect (in
such form and manner as the Secretary
may prescribe), at any time during a year,
to terminate the qualified salary reduction
arrangement under a SIMPLE IRA plan if
the employer establishes and maintains a
safe harbor section 401(k) plan to replace
the terminated arrangement.
Section 408(p)(11)(B) provides a
combined limit on the total of the salary
reduction contributions under the terminated arrangement and elective contributions under the safe harbor section 401(k)
plan for the transition year described in

section 408(p)(11)(C) (that is, the period
beginning after the termination date and
ending on the last day of the calendar year
during which the termination occurs). Under this limit, the total of those contributions must not exceed the time-weighted
average of the limits that apply, on a full
year basis, to a SIMPLE IRA plan (after
the application of the catch-up provisions
of section 414(v)) and a section 401(k)
plan.
Section 332(b) of the SECURE 2.0 Act
adds section 72(t)(6)(B) to the Code and
amends section 408(d)(3)(G). Under the
addition and amendment, the limitation
on rollovers of a distribution from a SIMPLE IRA does not apply if an employer
terminates the qualified salary reduction
arrangement of a SIMPLE IRA plan and
establishes a section 401(k) plan or section 403(b) plan, provided that the amount
is paid in a rollover contribution described
in section 408(d)(3) into a qualified trust
under section 401(k) (but only if such
contribution is subsequently subject to the
rules of section 401(k)(2)(B)) or an annuity contract described in section 403(b) (but
only if such contribution is subsequently
subject to the rules of section 403(b)(12).8
Section 401(k)(12)(D) generally requires a CODA that is intended to satisfy
the requirements of section 401(k)(12) to
provide an annual notice to each eligible
employee that is sufficiently accurate and
comprehensive to apprise the employee of
the employee’s rights and obligations under the CODA. A similar notice requirement applies under section 401(k)(13)(E)
to a CODA that is intended to satisfy the
requirements of section 401(k)(13). Under
section 401(k)(16)(B)(iii), a CODA that is
intended to satisfy the notice requirements
of section 401(k)(16) must satisfy the requirements of section 401(k)(13)(E).
Section 1.401(k)-3(d)(2)(ii) lists certain information that generally must be
described in a notice for the notice to be
considered sufficiently accurate and comprehensive under section 401(k)(12)(D) of
the Code and subject to the additional information requirements under § 1.401(k)3(k)(4)(ii) and under section 401(k)(13)
(E) of the Code.

It should be noted that section 72(t)(6)(B) refers to section 403(b)(12). However, unlike section 401(k)(2)(B), section 403(b)(12) does not include distribution limitations. Instead, section
403(b)(11) includes distribution limitations that are comparable to section 401(k)(2)(B).

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Section 332(c) of the SECURE 2.0
Act provides that amendments made by
section 332 apply to plan years beginning
after December 31, 2023.
Q. G-1: How does an employer terminate a SIMPLE IRA plan?
A. G-1: An employer terminates a SIMPLE IRA plan by taking formal written action that specifies the date as of which the
plan is terminated (termination date).
Q. G-2: If an employer terminates a
SIMPLE IRA plan, when do the contributions under the plan cease?
A. G-2: If an employer terminates a
SIMPLE IRA plan, then no salary reduction contributions may be made under the
plan with respect to compensation that
would be paid after the termination date.
However, the employer must make employer matching contributions under the
plan attributable to salary reduction contributions or nonelective contributions,
based on the employees’ compensation
earned through the termination date of the
SIMPLE IRA plan.
Q. G-3: Who must the employer notify
of the termination of a SIMPLE IRA plan?
A. G-3: The employer must notify employees of the termination of a SIMPLE
IRA plan at least 30 days before the termination date. The notification must specify
that no salary reduction contributions will
be made to the plan with respect to compensation that would be paid after the termination date. The notice must also include
a statement that employees will receive
matching contributions attributable to salary reduction contributions or nonelective
contributions based on the employees’
compensation through the termination date
of the SIMPLE IRA plan. The employer
should also (1) notify the SIMPLE IRA
plan’s financial institution and the employer’s payroll provider that the employer will
cease making any SIMPLE IRA contributions, and (2) keep records of all actions
concerning the termination of the SIMPLE
IRA plan. However, the employer does not
need to notify the IRS that the SIMPLE
IRA plan has been terminated.
Q. G-4: If a participant takes a distribution from a terminated SIMPLE IRA plan
within the first two years of participation
under the plan, under what circumstances
can that distribution be rolled over to another eligible retirement plan that is not a
SIMPLE IRA?

January 8, 2024

A. G-4: If a participant takes a distribution from a terminated SIMPLE IRA
plan within the first two years of participation under the plan, the distribution may
be rolled over to an eligible retirement
plan that is not a SIMPLE IRA only if
the amount is rolled over to either: (1) a
section 401(k) plan that is subject to the
distribution limits of section 401(k)(2)(B)
of the Code; or (2) a section 403(b) plan
that is subject to the distribution limits of
section 403(b)(11).
Q. G-5: Is the establishment of a safe
harbor section 408(k) plan under section
408(p)(11) an exception to the rule in section 408(p)(2)(D)?
A. G-5: Yes. The rule under section
408(p)(11) that permits an employer to
terminate a SIMPLE IRA plan and replace
it with a section 401(k) safe harbor plan
is an exception to the section 408(p)(2)
(D) prohibition on an employer maintaining both a SIMPLE IRA plan and another
plan, contract, pension, or trust described
in section 219(g)(5)(A) or (B) in the same
calendar year.
Q. G-6: When a SIMPLE IRA plan is
replaced by a safe harbor section 401(k)
plan mid-year, how are the elective contribution limits determined under the safe
harbor section 401(k) plan?
A. G-6: When a SIMPLE IRA plan is
replaced by the safe harbor section 401(k)
plan mid-year, the total amount that may
be contributed as salary reduction contributions under the terminated SIMPLE
IRA plan and as elective contributions
under the safe harbor section 401(k) plan
may not exceed the weighted average of
the salary reduction contribution and elective contribution limits for each of those
plans (weighted by how many of the 365
days in the transition year each plan was
in effect). Thus, the total amount that may
be contributed as elective contributions
to the safe harbor section 401(k) plan is
equal to(1) The annual limit on salary reduction
contributions under a SIMPLE IRA plan
for the year (taking into account catch-up
contributions described in section 414(v)),
multiplied by a fraction equal to the number of days the SIMPLE IRA plan was in
effect for that year divided by 365, plus
(2) The annual limit on elective contributions under a section 401(k) plan for the
year, under section 402(g), multiplied by

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a fraction equal to the number of days the
safe harbor plan was in effect for that year
divided by 365, minus
(3) Any salary reduction contributions
under the SIMPLE IRA plan for the year.
Q. G-7: If an employer elects during a
year to terminate a qualified salary reduction

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Airs%3A297dff3ed3f7775a. Public record. Not legal advice.