Employee Benefit Plans: Catch Up Contributions

Beginning January 1, 2026, new rules under SECURE 2.0 will significantly change how certain employees make catch-up contributions to retirement plans. Highly Paid Individuals (HPIs) will be required to make their catch-up contributions on a Roth basis.

New Catch-Up Contribution Rules Coming in 2026

• HPIs are employees earning more than $145,000 in FICA wages in the prior year (adjusted for inflation after 2025).
• Applies to 401(k), 403(b), and governmental 457(b) plans.

While the IRS has released proposed regulations to guide employers, final rules have not yet been issued, leaving plan sponsors to operate in good faith under the proposals for now.

Importantly, plans are not required to add a Roth feature. However, if they do not, only employees under the $145,000 HPI threshold will be able to make catch-up contributions.

Impact on Plan Sponsors

• Plans don’t have to add Roth, but if they do not:
  
  • Only employees under the HPI threshold can make catch-up contributions.
• To keep catch-ups available for all, plans must permit Roth deferrals for every participant—not just HPIs.
  

Correcting Mistakes

For employers, compliance hinges on identifying HPIs correctly and ensuring procedures are in place to handle mistakes. If an HPI mistakenly makes pre-tax catch-up contributions, the proposed rules provide three correction methods:

• Reclassify as Roth before W-2s are issued.
  
• Perform an in-plan Roth rollover by strict deadlines.
• Distribute the contributions back to the participant if the applicable deadlines are missed.

It is important to note that Plan Sponsors must already have policies/procedures in place to use these correction methods.

What to do next?

With the effective date approaching, plan sponsors should begin coordinating with their payroll providers, third-party administrators, and service partners to prepare for these changes. Proper identification of HPIs, plan amendments to permit Roth deferrals, and clear communication with participants will be key. Early planning in 2025 will help ensure a smooth transition when the new Roth catch-up rules officially take effect in 2026.