On January 10, 2025, the Department of the Treasury and the Internal Revenue Service (IRS) issued proposed regulations clarifying the implementation of catch-up contributions under the SECURE 2.0 Act of 2022. These long-awaited regulations provide crucial guidance for employers and retirement plan administrators but also highlight the complexity of ensuring compliance with the new rules.
Key Provisions of the Proposed Regulations
The proposed regulations address two primary provisions of SECURE 2.0 related to catch-up contributions:
- Mandatory Roth Catch-Up Contributions – Beginning in 2026, catch-up contributions for higher-income participants in 401(k), 403(b), and governmental 457(b) plans must be made on a Roth basis.
- Increased Catch-Up Limits for Certain Participants – Plan participants who turn 60 through 63 in a given tax year will be eligible for a higher catch-up contribution limit starting in 2025.
Mandatory Roth Catch-Up Contributions
Under the new rules, employees earning more than $145,000 in FICA wages from their employer in the previous year must make catch-up contributions as Roth contributions. Employers who offer catch-up contributions must also ensure that all catch-up-eligible employees have the option to contribute on a Roth basis. Plans that do not currently offer a Roth contribution option will need to implement changes or risk losing the ability to allow any catch-up contributions.
This provision was originally scheduled to take effect in 2024 but was delayed until 2026 to give employers and plan administrators more time to prepare. The proposed regulations confirm that compliance will require significant coordination between payroll systems, plan administrators, and legal advisors to track wages and administer the Roth catch-up contributions correctly.
For employers, this change means a significant shift in how catch-up contributions are managed. Those with highly compensated employees should start reviewing their plan documents and working with payroll providers to ensure compliance. The transition period provides a critical window to implement necessary adjustments without risking noncompliance.
Increased Catch-Up Limits
For tax years beginning in 2025, individuals who turn 60 through 63 during the year can take advantage of increased catch-up contribution limits. For non-SIMPLE plans, the catch-up limit will be the greater of $10,000 or 150% of the regular catch-up amount for 2024. This higher limit will be adjusted annually for inflation starting in 2026.
Although this provision is optional for employers, plans choosing to implement the increased limit must ensure they meet universal availability requirements, meaning all eligible employees within that age range must be given the opportunity to contribute up to the enhanced limit.
This enhanced provision allows older workers nearing retirement to contribute more to their savings, which can be particularly beneficial for those looking to maximize their retirement funds in their final working years. Employers that decide to adopt the higher catch-up limits should update their retirement plan documents and educate employees on how to take full advantage of these changes.
Compliance Considerations for Employers
The proposed regulations confirm that these changes will introduce additional administrative challenges for plan sponsors. Employers should take the following steps to prepare:
- Evaluate Plan Design – Determine whether plan amendments will be required to comply with the new Roth catch-up contribution rules or to adopt the increased catch-up limits.
- Coordinate with Payroll & HR Systems – Ensure payroll systems can track FICA wages and properly categorize employees subject to the Roth catch-up mandate.
- Educate Employees – Develop clear communication strategies to inform employees of these changes and how they may impact their retirement contributions.
- Work with Legal Counsel – Given the complexities of these regulations, employers should consult with their legal advisors to confirm compliance and avoid potential penalties.
- Engage Plan Administrators – Collaboration with third-party plan administrators will be essential to ensure a smooth transition and correct application of the new rules.
Regulatory Timeline and Action Plan
Employers and plan administrators have until March 14, 2025, to submit comments on the proposed regulations, and a public hearing is scheduled for April 7, 2025. While final regulations are still pending, now is the time for employers to review their retirement plans and ensure they are prepared for these upcoming changes.
The proposed regulations serve as a reminder of the evolving landscape of retirement plan compliance. Employers should take proactive steps to stay ahead of these changes and avoid disruptions to employee retirement savings.
Stay tuned for further updates as additional guidance becomes available.
