SF4904

Purpose

• Establish a new Launch Account Contribution Program to let state employees voluntarily redirect some of their compensation or their employer’s matching contributions from the Minnesota deferred compensation plan into Launch Accounts. The goal is to help save for a child’s financial future, promote long-term savings and financial literacy, strengthen family financial security, support state economic stability, and build intergenerational wealth without additional state spending.

Key Definitions (in plain terms)

• Launch Account: a special savings account created under the Internal Revenue Code for this program.
• Deferred compensation plan: Minnesota’s existing employee retirement savings plan.
• Employer matching contribution: money the employer would normally contribute to the employee’s deferred compensation plan, which can be redirected to a Launch Account.
• Pilot program contribution: a sample or initial contribution allowed under the relevant IRS rules.
• Program: the Launch Account Contribution Program being created.

Main Provisions

• Establishment and scope

  • By July 4, 2026, the state must set up and maintain the program so state employees can direct some contributions to a Launch Account or multiple Launch Accounts.
  • The program must be available to all state employees and follow applicable tax code rules (IRS sections 128 and 530A) and IRS regulations.

• How to open a Launch Account

  • A Launch Account must be opened before any contributions are made.
  • Opening can be done by an election on IRS Form 4547 or through an online tool on the Launch Account website.
  • If the initial Launch Account is opened at a different time than a pilot program contribution, the person who may open it is prioritized by family relationship (in order: legal guardian, parent, adult sibling, grandparent).
  • If opening at the same time as the pilot contribution, the person with priority is the one who expects the child to be the qualifying child under IRS rules for the tax year.

• Contributions and how they work

  • The employer’s matching contribution that is redirected to a Launch Account must be set out in an agreement between employee and employer.
  • The employee’s own contributions via payroll deduction must also be set out in an agreement.
  • Employee contributions are voluntary and not treated as employer contributions.
  • An employee can reduce their own contributions to the deferred compensation plan to contribute to a Launch Account.
  • Contributions must be credited to the Launch Account(s) designated by the employee.
  • Total contributions (employee plus employer) cannot exceed the IRS annual limit.
  • The program should work within the state’s existing payroll systems.

• Tax and retirement treatment

  • Contributions paid to a Launch Account under federal rules are not included in the employee’s taxable income.
  • The employer’s Launch Account contributions are not treated as part of the employee’s compensation for retirement benefit calculations under Minnesota law.

• Administration and reporting

  • The commissioner (the state budget official) can adopt rules to coordinate with the Department of Revenue and the IRS to ensure proper reporting and adherence to contribution limits.
  • The program should use existing payroll and deferred compensation systems where possible to keep administrative costs low.

Significant changes to existing law

• Creates a new statutory program (Launch Account Contribution Program) that allows redirecting employer matching contributions from the state’s deferred compensation plan into Launch Accounts for a child’s future.
• Establishes a new exemption and treatment for Launch Account contributions (not counted as income for tax or retirement calculations) and requires alignment with IRS rules.
• Adds new obligations for the commissioner to set up procedures, forms, and coordination with other agencies.

Practical implications

• State employees gain a new option to save for a child’s future with possible partner employer contributions funneled into Launch Accounts.
• The program emphasizes intergenerational wealth-building and financial literacy, with no extra cost to the state.
• Administration relies on existing payroll systems and established IRS rules to minimize overhead.

Potential considerations

• How the priority rules for who can open a Launch Account may affect families.
• Ensuring reliable coordination with IRS/Department of Revenue for annual reporting and limits.
• Tracking and communicating the impact on retirement benefits and tax treatment for employees.

Notable terms carried forward

• Launch Account Contribution Program Act
• Launch Account
• Deferred compensation plan
• Employer matching contribution
• Internal Revenue Code (IRC) sections: 530A, 128, 6434, 152
• IRS Form 4547
• Commissioner of management and budget
• Department of Revenue

Relevant Terms - Launch Account - Launch Account Contribution Program Act - Deferred compensation plan - Employer matching contribution - Internal Revenue Code - IRS - Form 4547 - IRC 530A - IRC 128 - IRC 6434 - IRC 152 - Pilot program contribution - Commissioner - Department of Revenue - Payroll systems - Retirement annuity calculations - Financial literacy - Intergenerational wealth