“Catch Up” on Yr-Finish Action Objects for Retirement Plans: Legislation Agency, Attorneys, Legal professionals

As the top of 2025 approaches, employers that sponsor retirement plans ought to “catch-up” on their operational and plan doc compliance necessities. The SECURE 2.0 Act of 2022 (SECURE 2.0) launched quite a few necessary and non-compulsory provisions for retirement plan sponsors to contemplate (a lot of that are already in impact). In addition, the Internal Revenue Service (IRS) not too long ago revealed lengthy anticipated ultimate rules associated to 2 catch-up contribution provisions enacted beneath SECURE 2.0.  Although plan amendments are typically not required till December 31, 2026, plan sponsors should guarantee operational compliance with SECURE 2.0’s catch-up provisions by January 1, 2026. This alert highlights sure points of the ultimate rules associated to catch-up contributions and supplies reminders associated to approaching plan modification deadlines for catch-up contributions and sure different relevant legal guidelines.

Super Catch-Up Contributions

For taxable years starting after December 31, 2024, eligible individuals who attain age 60 to 63 in the course of the taxable 12 months could also be permitted to contribute as much as 150% of the usual catch-up contribution restrict. For 2025, the usual catch-up contribution restrict for people who’re age 50 or older on the finish of the calendar 12 months is $7,500, which means that the tremendous catch-up contribution restrict is $11,250. Plan sponsors are usually not required to allow tremendous catch-up contributions. However, if permitted by the plan, the ultimate rules make clear that the plan doc should be up to date to particularly allow tremendous catch-up contributions by December 31, 2026. Moreover, the ultimate rules verify that allowing tremendous catch-up contributions won’t trigger a plan to violate the “universal availability” requirement (i.e., all catch-up eligible individuals will need to have the chance to contribute the identical greenback quantity as catch-up contributions). The common availability requirement will probably be violated, nevertheless, except all plans inside an organization’s managed group equally apply the tremendous catch-up contribution provision. As such, if one plan in an organization’s managed group implements tremendous catch-up contributions, then all plans inside the identical managed group should allow such contributions.

Mandatory Roth Catch-Up Contributions

The ultimate rules verify that employer-sponsored certified retirement plans that allow catch-up contributions should operationally adjust to the Roth catch-up requirement as of January 1, 2026. In normal, the Roth catch-up requirement supplies that catch-up eligible individuals with FICA wages (i.e., Box 3 on Form W-2) exceeding $145,000 (adjusted yearly for inflation) within the prior calendar 12 months could solely be permitted to make catch-up contributions as Roth contributions. More particularly, individuals topic to the Roth catch-up requirement could, if set forth within the plan doc, be deemed to have designated any catch-up contributions as Roth contributions, offered that such participant is afforded an efficient alternative to vary or stop their catch-up contribution election previous to the deemed election making use of.  Including deemed Roth catch-up elections within the plan phrases is a prerequisite for utilizing sure correction strategies offered beneath the ultimate rules associated to administrative errors related to the Roth catch-up requirement. If a plan doesn’t allow Roth contributions, these high-wage individuals could not make catch-up contributions.

The ultimate rules make clear extra points of the Roth catch-up requirement. Specifically, with respect to the relevant wage threshold, a plan sponsor could (if set forth inside the plan doc) mixture a participant’s FICA wages from a number of employers in the identical managed group or from a typical paymaster. Additionally, individuals with out FICA wages within the prior calendar 12 months (e.g., companions who solely had self-employment revenue) are usually not topic to the Roth catch-up requirement. The ultimate rules additionally make clear that plan sponsors are usually not permitted to require that every one catch-up contributions be designated Roth contributions.

Plan Amendment Deadline

In normal, IRS Notice 2024-2 offered plan sponsors till December 31, 2026, to implement the required plan amendments offered beneath SECURE 2.0 (together with its catch-up provisions), the SECURE Act of 2019 (SECURE), and the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). This modification deadline pertains to various key SECURE 2.0 provisions which can be already in impact, together with modifications to sure required minimal distribution (RMD) necessities, computerized plan enrollment necessities, and long-term part-time worker participation necessities. Please needless to say terminating retirement plans should be amended to replicate all discretionary and required amendments, together with modifications beneath SECURE 2.0, SECURE, and CARES Act, by the plan termination date.

Next Steps for Plan Sponsors

Employers that sponsor certified retirement plans ought to assessment present plan operations to make sure compliance with the ultimate rules related to catch-up contribution provisions (and different points of SECURE 2.0, SECURE, and CARES Act) and take into account whether or not any conforming amendments are essential to adjust to plan operations or modifications in regulation.  Please contact any member of Honigman’s Employee Benefits and Executive Compensation Team to debate any retirement plan amendments or different operational requirement questions you’ll have.