New Guidance Issued on Mandatory and Optional Catch-Up Provisions Under SECURE 2.0

New guidance facilitates the implementation and operation of two important SECURE 2.0 features: mandatory Roth catch-up contribution rules for high-income participants, and the optional "super" catch-up contributions permitted for participants aged 60-63. The proposed regulations, issued by the Internal Revenue Service ("IRS") and the Department of Treasury ("Treasury") on January 10, 2025, clarify details of these features for practitioners and employers with 401(k) plans, 403(b) plans, and nongovernmental 457(b) plans.

Three Top Takeaways From the Proposed Regulations

• Mandatory Roth Catch-up Contributions: It is for real this time. Although previously delayed when the industry and the IRS were not prepared for the rapid implementation of this SECURE 2.0 Act provision, all signs point towards the January 1, 2026 date sticking. No later than that date, employees aged 50 or older earning over $145,000 in the previous year may only make catch-up contributions as after-tax Roth contributions. If a plan does not offer a Roth option, those high earners may not make catch-up contributions to the plan.
• Determining the Earnings Threshold: The wage threshold is based on Social Security (FICA) wages paid to the individual by the employer sponsoring the plan. Only wages paid by the employee's direct employer are considered (other controlled group entities are disregarded). The threshold is not prorated; an employee hired for only a portion of the prior year, who earns less than the threshold, will not be subject to the mandatory Roth catch-up requirement in the following year. It also appears as if partners in partnerships or other self-employed individuals will not be subject to this provision if they do not have FICA wages.
• Voluntary Age 60 to 63 Super Catch-up Contributions: Super catch-up contributions, which became effective January 1, 2025, allow participants aged 60 to 63 to make catch-up contributions up to the greater of $10,000 or 150% of the regular limit. Participants turning 64 will revert to the standard limit. The guidance generally confirms expectations about how this feature will operate. However, the guidance does not address whether these "super catch-up" contributions are required across controlled groups if implemented by a single employer in the group.

Mandatory Roth Catch-up Contributions for High Earners

Section 603 of SECURE 2.0 originally provided that, starting in 2024, employees aged 50 or older earning more than $145,000 (indexed) in social security wages in the previous year ("impacted participants") must make any catch-up contributions permitted under a plan as after-tax Roth contributions. In order to offer any catch-up contributions, plans subject to this rule must also allow all catch-up eligible participants (age 50 and over) to make their catch-ups on a Roth basis, even if they do not qualify as impacted participants. The effective date for these mandatory Roth catch-up requirements was postponed from January 1, 2024 to January 1, 2026, per Notice 2023-62. During this transition period, catch-up contributions made by impacted participants do not have to be made on a Roth basis.

The proposed regulations contain the following additional guidance for mandatory Roth catch-up contributions:

• During the transition period, plan sponsors and administrators may treat an election by a participant to make catch-up contributions on a pre-tax basis as an election to make catch-up contributions as designated Roth contributions if the participant is an impacted participant. After the transition period, plans will be required to: (1) include catch-up contributions subject to the deemed Roth catch-up election in the impacted participant's gross income, and (2) maintain the catch-up contributions in a designated Roth account.
• For purposes of determining the earning threshold for an impacted participant, the wage threshold is based on Social Security (FICA) wages paid to the impacted participant in the prior year by the employer sponsoring the plan. This means that a participant who did not have FICA wages exceeding $145,000 (as adjusted) from the employer sponsoring the plan for the preceding calendar year would not be an impacted participant (i.e., not subject to the mandatory Roth catch-up requirement under the plan) for the current year. Further, the Roth catch-up wage threshold will not be prorated for the first year of hire. Therefore, an employee hired for a portion of a prior year who earns less than $145,000 (as adjusted) in FICA wages will not be subject to the mandatory Roth catch-up requirements in the following year. It also appears as if partners in partnerships or other self-employed individuals will not be subject to this provision if they do not have FICA wages.
• For purposes of identifying an "employer sponsoring the plan," the employer is the participant's common law employer (and other controlled group entities are disregarded). If more than one employer sponsors the plan, then a participant's prior year FICA wages from one employer sponsoring the plan are not aggregated with wages from other sponsoring employers. Only the wages paid by the employee's direct employer are considered. This is true for plans maintained by more than one employer (including a multiple employer or multiemployer plan), as well, if a participant moves from one plan sponsor to another.
• If a plan does not offer a qualified Roth contribution program, impacted participants may not make catch-up contributions to the plan. However, the plan may still permit other participants who are not subject to the mandatory Roth provisions to make catch-up contributions, provided participant wages are closely tracked to ensure that those participants do not exceed the Roth catch-up wage threshold.
• If a plan permits Roth catch-up contributions, it must also permit pre-tax catch-up contributions.
• If catch-up contributions are offered for impacted participants, the plan must allow all participants to make catch-up contributions on either a Roth or pre-tax basis.
• Plans may take into account designated Roth contributions that are made prior to an applicable limit being reached for purposes of determining whether the Roth catch-up requirement is satisfied. Thus, if a catch-up eligible participant's total elective deferrals that are designated Roth contributions over the course of a taxable year (typically a calendar year) equal or exceed the total elective deferrals that are determined to be catch-up contributions, then the participant would satisfy the Roth catch-up requirement.
• Plans may now use a Form W-2 correction method or an in-plan Roth rollover correction method to correct a failure of the mandatory Roth catch-up provisions. The deadline to correct a failure will depend on which limit is the basis for the pre-tax deferral being designated a catch-up contribution.

Age 60 to 63 Catch-up Contributions

The proposed regulations also provide guidance on Section 109 of SECURE 2.0. Section 109 amends the Internal Revenue Code to set forth the applicable dollar catch-up limit that applies to certain catch-up eligible participants. Effective January 1, 2025, participants aged 60, 61, 62 or 63 in 401(k) plans, 403(b) plans, and non-governmental 457(b) plans can make a catch-up contribution that is the greater of (1) $10,000, or (ii) 150% of the regular catch-up limit ($11,250 for 2025) in addition to the $23,500 (for 2025) annual deferral contribution limit. The proposed regulation provides the following guidance for such "super catch-up" contributions:

• The catch-up contribution limit for participants who turn 64 years old by December 31 of the applicable calendar year will revert back to the standard limit ($7,500 for 2025).
• Plans will not fail to satisfy the universal availability requirement of Code Section 414(v) – that all catch-up eligible participants have an effective opportunity to make the same dollar amount of catch-up contributions – by allowing "super catch-up" participants to make higher contributions while other catch-up eligible participants can only contribute up to the regular catch-up dollar amount.
• The regulations do not address how the offering of super catch-up contributions applies in a controlled group setting under the universal availability requirement. Therefore, plans maintained within a controlled group should offer the super catch-up contribution provisions on a consistent basis (i.e., if offered under one plan, it should be offered under all plans in the controlled group).
• Although plan sponsors are not required to implement the "super" catch-up provisions, plans on pre-approved documents or other plans that refer generally to Code Section 414(v) (which contains the increased "super" catch-up contribution limit) may be required to offer "super" catch-up contributions as of January 1, 2025, unless an amendment is adopted to specify that "super" catch-up contributions are not allowed under the plan.

Comments to the Treasury and IRS on the proposed regulations must be submitted by March 14, 2025. A public hearing is scheduled for April 7, 2025.

The proposed regulations will generally become effective for both mandatory Roth catch-up and "super" catch-up contributions in taxable years starting six months after the publication of the final rule.

Please contact your DWT benefits attorney with any questions on implementing catch-up provisions.