The long-awaited guidance on the provisions of the SECURE 2.0 Act of 2022 (SECURE 2.0) impacting catch-up contributions has been issued and answers questions plan practitioners have been asking. SECURE 2.0 added a requirement that employees who made $145,000 or more in the previous year must designate any catch-up contributions as Roth (after-tax) deferrals.

Plans That Do Not Currently Permit Roth Contributions

The guidance does not require a plan to allow Roth deferrals. However, if the plan does not allow Roth deferrals, the limit on catch-up contributions for those who made $145,000 in the prior year is $0. To pass testing, a highly compensated employee (HCE) who is not subject to Roth catch-up contributions may need to be precluded from making catch-up contributions. This could happen if the top-paid group election is made for the definition of HCE or if a participant is an HCE because the employee is a 5% owner.

Compensation Limit

The guidance specifies that the $145,000 compensation limit is determined based on Federal Insurance Contributions Act wages (FICA wages) for the previous year. This excludes self-employment income, which is not FICA wages. The compensation limit is determined without prorating wages for employees hired midyear. Only wages paid by the common law employer responsible for the employee’s compensation are considered, regardless of whether employers are aggregated under the controlled group rules.

Deemed Roth Elections

After a participant is required to make Roth catch-up contributions, the plan may deem the participant’s pre-tax deferral election to be a Roth deferral election; the plan is not required to obtain a new deferral election. The participant must still be provided the opportunity to change the participant’s deferral election if the participant no longer wants to defer. If a participant makes Roth deferrals during the year equal to the catch-up limit, but before the participant’s deferrals have reached the catch-up limit, the plan may count the amount of the Roth deferrals toward the required amount of Roth catch-up contributions.

Roth Elections for All Participants

If Roth elections are permitted for some participants, they must be permitted for all participants. A plan may not require all catch-up contributions to be Roth contributions. Participants must have a choice between designating deferrals as pre-tax or Roth.

Correction Methods

The guidance provides correction methods for failure to follow the Roth catch-up contribution rules accurately. To follow the correction methods, the plan must have practices and procedures in place to prevent failures, including providing for deemed Roth election at the time catch-up contributions start for affected participants or when deferrals exceed the Code §415(c) limit. The methods and deadlines for correction vary depending on the failure.

Effective Date

For plans that are not collectively bargained, the rules apply for contributions in taxable years that begin more than 6 months after the final regulations are issued. If final regulations are issued before the end of 2025, the rules would apply beginning January 1, 2027. However, plans are permitted to apply these rules to taxable years beginning after December 31, 2023.

For collectively bargained plans, the deadline is extended to the first taxable year beginning more than 6 months after the final regulations are issued or, if later, the first taxable year beginning after the termination of the last collective bargaining agreement related to the plan that is in effect on December 31, 2025, excluding any extensions.