Will recordkeepers be ready to process the saver’s match?

For tax years that begin on or after January 1, 2027, SECURE 2022 replaces the saver’s credit with the saver’s match. An eligible individual claims this “match” in her Federal income tax return. The US Treasury pays this as a contribution to the eligible individual’s applicable retirement savings vehicle, which the individual specifies (in her tax return, we guess). A plan that receives this Treasury contribution may be a § 401(k) plan, a § 403(b) plan, a governmental § 457(b) plan, or an IRA. For any of those, the Treasury’s contribution must be credited only to a non-Roth account.

A US Treasury contribution is made to a retirement plan only if the plan will accept these contributions, and segregate a separate subaccount for, appropriately credit, and tax-report regarding these Treasury contributions.

The US Treasury’s contribution is treated as the participant’s elective-deferral or individual’s IRA contribution, not as a matching or nonelective contribution.

But the Treasury’s contribution is not available for a hardship or unforeseeable-emergency distribution.

Internal Revenue Code (26 U.S.C.) § 6433, 31 U.S.C. § 1324(b)(2).

For an employment-based plan: Is there any big recordkeeper that might be unwilling to provide services to receive and distinctly recordkeep these contributions? Or will all of them fall in?

First, the Saver's Match has to survive 2026. 

• The topic will start to gather attention based on the mandate for Treasury to report about it to Congress by July.
• The target recipients of the Saver's Match low- and moderate-income employees, replacing the pre-existing Savers’ Credit for low- and moderate-income employees who make contributions to retirement plans.
• There are elements rile up anti-DEI advocates such as the multilingual communications, and some analysis published in PlanSponsor magazine that concluded "Plan sponsors and participants both benefit from retirement plans implementing the Saver’s Match because adding it could reduce gender and race disparities in 401(k) balances, finds research from the Collaborative for Equitable Retirement Savings." 

IRS Notice 2024-65 says:

"Section 104 of the SECURE 2.0 Act requires the Treasury Department to take steps to increase public awareness of Saver’s Match contributions, and to provide a report to Congress no later than July 1, 2026, summarizing the anticipated promotional efforts. The report must include a description of plans for: (1) the development and distribution of digital and print materials, including the distribution of such materials to states for participants in state facilitated retirement savings programs; (2) the translation of such materials into the 10 most commonly spoken languages in the United States after English ..."

Assuming is does survive, a few recordkeepers at best will offer to receive and separately account for the match, and administer the more restrictive withdrawal provisions.  No recordkeeper has access to the information needed to calculate the match or determine if the match calculation is accurate.

Since retirement plans are not required to accept Saver's Match contributions and since IRAs can accept the Saver's Match, it is very likely that most  plan recordkeepers will not accept it and refer clients to direct employees to IRAs.  It is possible that some state-run plans built around IRAs would be more interested in pursuing this.

55 minutes ago, Paul I said:

There are elements rile up anti-DEI advocates such as the multilingual communications, and some analysis published in PlanSponsor magazine that concluded "Plan sponsors and participants both benefit from retirement plans implementing the Saver’s Match because adding it could reduce gender and race disparities in 401(k) balances, finds research from the Collaborative for Equitable Retirement Savings." 

probably you're talking about Dr. Evil...

Paul I, thank you for your political and business observations.

Based on the statute, I presume it’s the US Treasury that calculates, following the individual’s Federal income tax return, the amount of a saver’s-match contribution.

Am I right in thinking a plan administrator’s recordkeeper might have little or no reason to know an individual’s § 6433 amount until the recordkeeper is asked to process the Treasury’s payment and credit individuals’ accounts? Or is there something I’m overlooking?

The statute provides “such [saver’s-match] contribution shall not be taken into account with respect to any applicable limitation under sections 402(g)(1), 403(b), 408(a)(1), 408(b)(2)(B), 408A(c)(2), 414(v)(2), 415(c), or 457(b)(2), and shall be disregarded for purposes of sections 401(a)(4), 401(k)(3), 401(k)(11)(B)(i)(III), and 416[.]”

Rather, the essential condition is that this subaccount is not “distributable to the participant under section 401(k)(2)(B)(i)(IV), 403(b)(7)(A)(i)(V), or 457(d)(1)(A)(iii).” The statute does not preclude other in-service distributions.

I’m aware there are many other difficulties, including some mentioned in SPARK’s November 4, 2024 comment letter https://www.sparkinstitute.org/wp-content/uploads/2024/11/Comment-Letter-on-Savers-Match-RFI-Final-11.4.24-.pdf.

Peter, you are not overlooking anything.  Plans are designed to gather information beforehand about participants and money coming into the plan.  This is not built into the Saver's Match design.

There is a significant mismatch between how retirement plans are administered and how tax "refunds" (read money paid from the Treasury to an individual) are administered.  The simplest way to characterize a recordkeeper taking on administering Saver's Match account is trying to pound a square peg into a round hole.  The SPARK comment letter's great detail about the mechanics of moving the money around is just one example of the issues a recordkeeper will face.