Quick Hits

• Starting in 2025, the SECURE 2.0 Act allows participants ages sixty to sixty-three to make “super-catch-up contributions” of up to $10,000 or 150 percent of the regular catch-up limit.
• Employers may need to amend their retirement plans by the end of 2024 to accommodate the new super-catch-up contributions or clarify their implementation.
• The introduction of super-catch-up contributions will require significant updates to payroll and recordkeeping systems to track different age categories and contribution limits.

The annual catch-up contribution limits will vary depending on the participant’s age, as shown in the table below:

The super-catch-up contribution feature is intended to provide an additional incentive for older workers to save more for retirement, as they may have less time and opportunity to accumulate savings than younger workers. However, this new feature raises several issues and challenges for employers and service providers that offer and administer retirement plans that allow catch-up contributions. In some cases, employers may be required to take action to amend their plans by the end of 2024 to ensure maximum flexibility when implementing super catch-up contributions.

Plan Amendments Before 2025?

Current guidance generally provides that qualified plans have until the end of 2026 to adopt both mandatory and optional SECURE 2.0 Act amendments. The SECURE 2.0 Act does not state whether the super-catch-up increase for ages sixty to sixty-three is optional or mandatory for plans that offer catch-up contributions. In addition, guidance is not yet available to clarify whether all plans that permit catch-up contributions must incorporate the increased super-catch-up limit in 2025 or may defer the effective date until a later year.

• Mandatory and Automatic? One possible read of the law change is that the increased super-catch-up limit is part of the definition of the overall catch-up limit in Internal Revenue Code Section 414(v), making the increased amounts automatic for plans that incorporate the limit under Code Section 414(v) by reference. Based on this interpretation, if a decision is made not to implement super-catch-up contributions for 2025, the plan may need to be amended by the end of 2024 to either (i) completely remove the ability to make catch-ups, or (ii) specify that the regular catch-up limit will continue to apply without any increase for those aged sixty to sixty-three.
• Optional and Requiring Affirmative Election? Another possible read is that the implementation of the increased super-catch-up limit is optional for employers because Code Section 414(v) references an upper “limit” on the catch-up amount, rather than requiring a specified dollar amount. Based on this interpretation, an amendment to specify whether or not the plan sponsor chooses to implement super-catch-up contributions could be adopted by the general deadline for SECURE 2.0 changes (currently the end of 2026). The plan sponsor would need to document the decision made in resolutions or other actions prior to 2025, and plan administration would need to be adjusted according to that documented decision.

The specific terms of an employer’s plan document may dictate which of these alternatives is applicable. In some circumstances, standard plan terms regarding catch-up contributions may automatically implement super-catch-up contributions beginning January 1, 2025. Other plans may have less clear language. For employers that take the position that super-catch-up contributions are optional and do not want to make these contributions available as of January 1, 2025, it may be necessary to adopt an amendment by December 31, 2024, to clarify that intent.

Further guidance from the Internal Revenue Service (IRS) to clarify this issue and confirm the choices available to the plan sponsor would be most welcome but has not yet been forthcoming.

Challenges for Payroll and Recordkeeping Systems?

The super-catch-up contribution limit introduces a new complexity for payroll and recordkeeping systems. Currently, payroll providers and recordkeepers need only track one age and one limit for catch-up contributions. Beginning in 2025, implanting super-catch-ups will require tracking three different age categories (fifty to fifty-nine, sixty to sixty-three, and sixty-four and older), based on the participant’s age at the end of the taxable year, to determine each participant’s catch-up limit for the year. This may require significant modifications to existing software and procedures, as well as coordination among plan sponsors, payroll providers, and recordkeepers. Plan sponsors may want to communicate with their service providers as soon as possible to understand any defaults that will be applied in implementing the new rules, as well as any options that need to be considered by the plan sponsors.

Communicating With Participants in Advance of 2025?

The super-catch-up contribution limit may be an attractive feature for older workers who want to boost their retirement savings, and plan sponsors may want to communicate the availability and operation of the super-catch-up contribution limit, including how the feature interacts with other plan contributions and limits, as soon as decisions have been made. Regardless of whether a plan amendment is completed prior to 2025, plan sponsors may nevertheless want to review their enrollment materials, summary plan descriptions, and other plan communications to ensure they are consistent and accurate with respect to the type and amount of catch-up contributions that will be available beginning as 2025, as well as whether an affirmative election is needed for those employees who will be age sixty to sixty-three by the end of 2025.