HRPA Advocacy Results in Two-Year Implementation Relief of Roth Catch-Up Requirement

The IRS announced on August 25^th that employers will have a two-year administrative transition period to comply with a SECURE Act 2.0 provision that requires 401(k) catch-up contributions to be made on an after-tax basis for retirement plan participants earning over $145,000. 

Retirement experts and plan sponsors cited several challenges with the original timing including the significant undertaking of updating payroll and recordkeeping systems that are needed to manage the change. In its press release, the IRS stated that “The administrative period will help taxpayers transition smoothly to the new Roth catch-up requirement and is designed to facilitate an orderly transition for compliance with that requirement.” 

Additional guidance coming: The Treasury Department and the IRS expect to issue further guidance to plan sponsors on applying the rule and have requested public comments on their preliminary guidance by October 24, 2023. This addresses some outstanding questions such as how to treat employees who earned wages exceeding $145,000 from multiple employers in a year and a company’s ability to treat a pre-tax catch-up election as a Roth election for those meeting the threshold.

Outlook: With the deadline looming, most employers were already working on process changes, system enhancements, and amending plan documents, but this extended period will help organizations ensure ample time for system testing, implementation, and employee communications.