HF5093

Purpose

• Create a new Launch Account Contribution Program to let state employees either:
  • voluntarily contribute part of their own compensation to a Launch Account, or
  • redirect their employer’s matching contributions that would normally go to the Minnesota deferred compensation plan to a Launch Account.
• Use these Launch Accounts to save for a child’s financial future, aiming to improve family financial security, support economic stability for the state, complement existing retirement and deferred compensation programs, promote financial literacy, and build intergenerational wealth without extra cost to the state.

Key Definitions and Structure

• Launch Account: an account established under the Internal Revenue Code (IRC) section 530A.
• Deferred compensation plan: Minnesota’s state employee retirement/deferral program (IRC 530A plan).
• Employer matching contribution: the state employer’s contribution that matches an employee’s deferral in the deferred compensation plan.
• Pilot program contribution: a contribution to a Launch Account described under IRC section 6434.
• Program: the Launch Account Contribution Program.

Main Provisions

• Establishment and scope
  • The commissioner must establish and maintain the program so employees can redirect employer matching contributions and/or make their own contributions to a Launch Account.
  • The program must be uniformly available to all state employees and comply with IRC sections 128 and 530A and related IRS regulations.
• Purpose and goals
  • The program is designed to help save for a child’s future, strengthen family financial security, complement retirement programs, promote financial literacy, and build intergenerational wealth without increasing state spending.
• Account opening and control
  • A Launch Account must be opened before contributions can be made, using IRS Form 4547 or an online tool.
  • If opening is not simultaneous with a pilot contribution, priority for who can open the initial account is: guardian, parent, adult sibling, then grandparent (in that order). If multiple people share the same priority and no prior election exists, any of them may open.
  • If opening and a pilot contribution are elected at the same time, the person who anticipates the child to be a qualifying child (per Internal Revenue Code Section 152 for the tax year of the election) is the one who opens.
• Contributions
  • Employees may elect to redirect a portion of their own contributions to a Launch Account, and may elect to redirect the employer’s matching contribution to a Launch Account.
  • All such elections must be documented in agreements with the employee’s employer, in formats specified by the commissioner.
  • Employee contributions to a Launch Account are voluntary and separately accounted from regular employer contributions.
  • An employee may reduce their own contribution to the traditional deferred compensation plan to fund the Launch Account.
  • Contributions must be credited to the Launch Account(s) designated by the employee and must not exceed annual limits under the IRC (530A(c)(2)).
  • The program must work within existing payroll systems to facilitate contributions.
• Tax and retirement treatment
  • Contributions to a Launch Account made under section 128 of the IRC are not included in the employee’s income.
  • The employer’s redirected matching contribution to a Launch Account is not considered part of compensation for purposes of retirement annuity calculations under Minnesota pension law (chapter 352).
• Administration and reporting
  • The commissioner may issue rules to coordinate with the Department of Revenue and the IRS to ensure compliance with contribution limits and reporting requirements.
  • The program should leverage existing payroll and deferred compensation systems to minimize administrative costs.

Implementation Timeline and Oversight

• By July 4, 2026, the commissioner must establish and maintain the program.
• The program is designed to be uniformly available to all state employees, with ongoing administration, reporting, and compliance duties.

Significant Changes to Existing Law

• Creates a new statutory program under Minnesota Statutes chapter 43A, allowing state employees to redirect part of their compensation or employer matching to a Launch Account.
• Introduces a new savings pathway specifically linked to a child’s financial future, separate from traditional retirement savings, with distinct tax and retirement-eligibility rules.
• Integrates Launch Accounts with existing IRC-based accounts (530A deferred compensation) and requires coordination with IRS and Department of Revenue.

Potential Impacts and Considerations

• For state employees and families: potential for increased long-term savings for children and improved financial literacy, with tax-advantaged treatment on certain contributions.
• For state administration: requires setup of new processes, forms, and payroll system integrations, but aims to minimize ongoing costs by leveraging current systems.
• Tax and retirement implications: certain contributions and treatments are designed to be tax-advantaged and not counted as income or retirement accruals in specified ways, which could affect budgeting and retirement calculations.

Relevant terms - Launch Account - Launch Account Contribution Program Act - deferred compensation plan (Minnesota) - employer matching contribution - pilot program contribution - Internal Revenue Code (IRC) - section 530A - section 6434 - section 128 - Form 4547 - qualifying child (Internal Revenue Code section 152) - payroll systems - Department of Revenue - IRS regulations - uniform availability - annual contribution limit (IRC 530A(c2) - retirement annuity calculations (Minnesota chapter 352)