For many employers, retirement plan compliance feels like a largely delegated task — a payroll provider pulls elective deferrals from pay and timely submits them to the plan, a third-party administrator calculates employer contributions and files relevant forms, and an investment advisor keeps the investment mix in good working order.
However, the Secure 2.0 Act (the “Secure 2.0”) Roth catch-up rules just might be your signal to get a bit more involved. Under Secure 2.0, higher earning employees ($150,000+ of 2025 FICA wages), are subject to special rules that require plan sponsors to treat their catch-up contributions as after-tax Roth contributions.
On its face, this requirement sounds like another technical component of retirement plan administration that falls into someone else’s scope of responsibility. However, several components of these new catch-up rules are worth a bit of time and consideration on the employer side:
- Prior year FICA earnings with the employer sponsoring the 401(k) are considered. This means that a high earner hired late in 2025 may not be subject to the Roth catch-up rules for 2026; whereas, someone who changed to part-time status or otherwise reduced compensation in 2026 may find themselves unexpectedly covered.
- Retirement plans cannot state that only Roth catch-up contributions are permitted. That is, the plan sponsor must identify covered employees.
- A retirement plan may provide that an employee who is subject to mandatory Roth treatment is deemed to have irrevocably designated any catch-up contributions as Roth catch-up contributions, but retirement plans must be amended to allow for contributions to be designated without employee action.
- Employees subject to the mandatory Roth rules must be provided with an effective opportunity to change their election.
- If the Roth rules cease to apply to an employee, the deemed election must be eliminated within a reasonable period of time.
- Where a plan fails to designate covered contributions as Roth contributions, self-correction (i.e., correction without involving the IRS is possible) but only where the plan had adopted practices and procedures designed to comply with the Roth requirements.
- Otherwise, covered employees who elect to make some of their elective deferrals on a Roth basis may opt out of Roth catch-up contributions to the extent they have already contributed the same amount of money on a Roth basis.
- If a plan does not currently allow for Roth contributions, higher earners will not be able to make catch-up contributions unless/until it is amended to include a Roth contribution option.
- Compliance with Secure 2.0 is required now, but non-collectively bargained private employer plans are not required to amend their plans to comply with Secure 2.0 (or the Secure Act or the Cares Act) until December 31, 2026 (collectively bargained plans have until December 31, 2028, and governmental plans have until December 31, 2029).
Complying with these new requirements will require plan vendors and employers to work together, as each holds some but not all the information needed for compliance. We suggest that employers begin to partner with their vendors now to discuss what employes the vendors have flagged as covered by these rules to ensure that they align with company records. In addition, we recommend speaking with vendors to understand the communications that will go to employees alerting them to the deemed status of contributions and their opportunity to change elections. Vendors should also be able to describe how they will determine if an otherwise covered employee has already satisfied these rules though Roth elective deferrals.
Iris Tilley is a partner at Barran Liebman LLP where she represents employers on a wide range of employment issues. Contact her at 503-276-2155 or itilley@barran.com.
