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Thompson Hine LLP, a full-service business law firm with approximately 400 lawyers in 11 offices, was ranked number 1 in the category “Most innovative North American law firms: New working models” by The Financial Times and was 1 of 7 firms shortlisted for The American Lawyer’s inaugural Legal Services Innovation Award. The firm has been recognized by the National Law Journal as a Legal Technology Trailblazer and featured by Bloomberg for its innovative service delivery models, which drive accuracy and predictability. The firm’s commitment to innovation is embodied in Thompson Hine SmartPaTHTM – a smarter way to work – predictable, efficient and aligned with client goals. For more information, please visit ThompsonHine.com and ThompsonHine.com/SmartPaTH.

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			The IRS has issued long-awaited final regulations regarding the requirement included in the SECURE 2.0 Act of 2022 that catch-up contributions made during a plan year under a 401(k) or 403(b) plan by participants with FICA wages from the employer sponsoring the plan during the prior calendar year that exceed a specified dollar amount may be made only if they are made in the form of designated Roth contributions.&nbsp; Historically, participants ages 50 and older have been permitted to make catch-up contributions on either a pre-tax or Roth basis regardless of income.&nbsp; That would have changed effective January 1, 2024, however Treasury and the IRS recognized, correctly, that stakeholders (payroll providers, plan sponsors, and recordkeepers) would have been unable to have systems in place to reliably administer the provision, likely resulting in massive noncompliance and mistakes, without a delay and additional guidance and, accordingly, provided an administrative transition period during which compliance with the new provision was not required.&nbsp; That administrative transition period will expire at the end of 2025.&nbsp; The final regulations confirm that, except for multiemployer plans, plans to which the requirement applies will be required to be administered in accordance with a reasonable, good faith interpretation of this new statutory provision during 2026.&nbsp; Except for plans maintained pursuant to one or more collective bargaining agreements and governmental plans, strict compliance with the final regulations is required on and after January 1, 2027.&nbsp;&nbsp;&nbsp;
As described above, the dollar amount of FICA wages (Box 3 on Form W-2) received by a participant from the employer sponsoring the plan in the prior calendar year is used to determine whether a participant is permitted to make catch-up contributions only as designed Roth contributions.&nbsp; The statute specifies that the dollar amount is $145,000, however, because it is subject to cost-of-living adjustments in $5,000 increments, it is not yet known whether the dollar amount of FICA wages received during 2025 used to determine whether a participant is subject to the Roth catch-up requirement for 2026 will be $145,000 or $150,000.&nbsp; That dollar amount is expected to be included in the annual IRS Notice that specifies cost of living adjustments for a wide range of employee benefits purposes.
Here are some of the most impactful provisions of the final regulations:
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<li>FICA Wages: To Aggregate or Not to Aggregate?</li>
</ul>
Final regulations permit, but do not require, aggregation of FICA wages from the current common law employer with FICA wages received from one or more of its controlled group members for purposes of determining whether a plan participant is subject to the required Roth catch-up requirement.&nbsp; Aggregation is also permitted with one or more employers who are using a common paymaster in accordance with section 3121(s) of the Internal Revenue Code (use of which requires simultaneous employment) and with predecessor and successor employers in the case of certain asset purchases.&nbsp; If aggregation is used, the plan sponsor will need to amend the plan to include the optional aggregation in plan terms.
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<li>Roth Elections: To Deem or Not to Deem?</li>
</ul>
Final regulations permit, but do not require, plan participants who are subject to the Roth catch-up requirement to be deemed to have elected to make any catch-up contributions as designated Roth contributions.&nbsp; A deemed Roth catch-up election may be applied without respect to whether the plan makes use of a single or separate regular and catch-up election and may apply either based on when a participant who is required to make Roth catch-up contributions has made total elective deferrals (pre-tax and designated Roth contributions) equal to the Code section 402(g) limit for the year or when the participant has made pre-tax elective deferrals equal to the 402(g) limit.&nbsp; A plan may make use of this deeming only if (1) the participant who is subject of the deemed Roth election has an effective opportunity to make a new election that is different than the deemed election and (2) the deemed election ceases to apply within a reasonable period after the date the Roth catch-up requirement ceases to apply to the participant.<a id="_ftnref1" href="#_ftn1">[1]</a> &nbsp;Whether a participant has an effective opportunity to make a new election is determined by reference to a facts and circumstances test included in pre-existing regulations with which the marketplace has over 20 years&rsquo; experience complying.&nbsp; For a participant who is subject to the Roth catch-up requirement, the only alternative &ldquo;new&rdquo; election would be for the participant to elect to not make catch-up contributions.&nbsp; If deeming is used, the plan sponsor will need to amend the plan to include deemed Roth catch-up elections in plan terms.&nbsp; Note that including deemed Roth catch-up elections in plan terms is a pre-requisite for using methods to correct certain errors that occur in administering the Roth catch-up requirement (these methods will be described in more detail in a future post).
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<li>Applicability Dates: Can We Say it More Clearly?</li>
</ul>
The final regulations confirm that the Roth catch-up requirement generally is required to be implemented under all plans to which it applies in accordance with a reasonable, good faith interpretation of this new statutory provision during 2026.<a href="#_ftn2" id="_ftnref2">[2]</a>&nbsp; Except for plans maintained pursuant to one or more collective bargaining agreements and governmental plans, strict compliance with the final regulations is required on and after January 1, 2027.&nbsp; For these plans, it would not be reasonable or in good faith to simply ignore the requirement during 2026, however a reasonable, good faith interpretation standard clearly permits a certain level of noncompliance with the final regulations during 2026.
For plans that are maintained pursuant to one or more collectively bargained agreements, strict compliance with the final regulations is not required until January 1, 2027, or, if later, the first taxable year beginning after the date on which the last collective bargaining agreement related to the plan that is in effect on December 31, 2025 terminates.&nbsp; Prior to that regulatory applicability date, the statutory Roth catch-up requirement applies and the provision is required to be implemented for these plans during this period in accordance with a reasonable, good faith interpretation of this new statutory provision.&nbsp; For these plans, it may be reasonable and in good faith to not impose the Roth catch-up requirement on collectively bargained employees before the regulatory applicability date if it is determined that implementing the requirement would not be permissible under other substantive applicable law.
For governmental plans, strict compliance with the final regulations is not required until January 1, 2027, or, if later, the first taxable year beginning after the close of the first regular legislative session of the legislative body with the authority to amend the plan that begins after December 31, 2025.&nbsp; Prior to that regulatory applicability date, the statutory Roth catch-up requirement applies and the provision is required to be implemented for these plans during this period in accordance with a reasonable, good faith interpretation of this new statutory provision.&nbsp; For these plans, it may be reasonable and in good faith to not impose the Roth catch-up requirement if doing so would be inconsistent with applicable state and/or local law.
Brief summaries of the proposed regulations, major points raised during the public comment process, and the final regulations published in the Federal Register on September 17, 2025 are included below.
<h2 class="wp-block-heading">Proposed Roth Catch-Up Regulations</h2>
In January 2025, the IRS issued proposed regulations regarding the new Roth catch-up rule and other provisions of the SECURE 2.0 Act. &nbsp;Under the proposed regulations, the $145,000 Roth catch-up FICA wage threshold would be subject to cost-of-living adjustments and the Roth catch-up requirement would not apply to a participant in a SEP arrangement or a SIMPLE IRA plan.&nbsp; In addition, the Roth catch-up wage threshold would not be prorated for the first year of hire, meaning that a participant who worked for the employer sponsoring the plan for only part of the preceding calendar year would only be subject to the Roth catch-up requirement if the participant had wages exceeding the full Roth catch-up wage threshold from the employer for the preceding calendar year.
There are additional provisions that would address availability and implementation of the Roth catch-up requirement.&nbsp; If a plan has a catch-up eligible participant who is subject to the Roth catch-up requirement and permits that participant to make catch-up contributions as designated Roth contributions, then the plan would be required to allow all other catch-up eligible participants to also make catch-up contributions as designated Roth contributions.&nbsp; The proposed regulations specify that the time in the calendar year that the Roth contributions are made does not affect their classification as catch-up contributions&mdash;it only matters whether or not the amount contributed exceeds the applicable limit at the end of the plan year.&nbsp; Any contributions over the applicable limit would be treated as Roth catch-up contributions that satisfy the Roth catch-up requirement, regardless of when in the plan year they were made.&nbsp;
Finally, applicable employers would not be required to include a qualified Roth contribution program but may opt to do so.&nbsp; However, a catch-up eligible participant who is subject to the Roth catch-up requirement would only satisfy the requirement if catch-up contributions are designated Roth contributions.&nbsp; So, if an applicable employer does not include a qualified Roth contribution program, an eligible participant subject to the Roth catch-up requirement would be prohibited from making catch-up contributions under the plan.&nbsp; To address the universal availability requirement, which provides that an applicable employer would fail nondiscrimination testing under section 401(a)(4) unless all catch-up eligible participants under the plan are provided the opportunity to make the same dollar amount of catch-up contributions, the proposed regulations would create a safe harbor by permitting plans without a qualified Roth contribution program to set the maximum dollar amount of catch-up contributions as $0.&nbsp;
<h2 class="wp-block-heading">Issues Flagged by Commenters</h2>
The proposed regulations received 21 comments in the comment period, with seven comments from interested individuals and the remainder from industry or public policy groups.&nbsp; Common themes included requests for a delayed applicability date for implementing the Roth catch-up provision, reconsideration of the ability for plan sponsors to decide whether to make all catch-up contributions on a Roth basis, and an extension of the correction period.&nbsp;
Most comments requesting a delayed applicability date noted the time it takes to revise a plan and the lack of final regulations regarding Roth catch-up contributions.&nbsp; While suggested applicability dates ranged from &ldquo;the first taxable year in the first plan year beginning at least six months after the date of publication of the final rule,&rdquo; others simply suggested a 12-month applicability date in lieu of the current six-month applicability date.&nbsp; Many comments requested that the IRS reconsider its current stance on prohibiting a plan design where all catch-up contributions would be made on a Roth basis, citing easier implementation of the Roth catch up requirement and higher administrative feasibility for smaller plans.&nbsp; Finally, a number of comments requested a reasonable, good-faith interpretation exception to the implementation of Roth catch-up provisions, especially in the absence of final regulations.
There were two common themes regarding correction of errors that will occur in implementing the Roth catch-up requirement.&nbsp; The proposed regulations provide that corrections must be made through an in-plan Roth conversion or a form W-2 correction.&nbsp; However, the proposed regulations require that a plan sponsor only use one of these two correction methods for all participants with errors in their Roth catch-up contributions.&nbsp; Commenters that addressed this issue unanimously requested that they be permitted to use a combination of the correction options, as the type of correction may vary based on the individual participant and the severity of the error.&nbsp; Along the same vein, commenters were almost universal in asking for an extension to the in-plan Roth conversion correction deadline.&nbsp; Most commenters requested an extension for correction of the availability of the in-plan Roth conversion correction method until the end of the plan year following the plan year in which the error was made.&nbsp;
<h2 class="wp-block-heading">Changes in the Final Regulations</h2>
The final regulations include several changes that reflect issues raised by commenters and provide for additional flexibility in implementing and correcting the Roth catch-up requirement.&nbsp;
The final regulations provide that Roth contributions made prior to an applicable limit being reached, such as the 401(a)(30) limit on elective deferrals, may be considered when determining whether the Roth catch-up requirement is satisfied.&nbsp; This change allows participants to have the most flexibility with respect to the timing and designation of their elective deferrals, but the final regulations provide a caveat that any catch-up contributions designated as Roth pursuant to a separate election are irrevocably designated as Roth.&nbsp; In conjunction with the irrevocable nature of designated Roth catch-up contributions, the final regulations retain and expand on providing plans with flexibility to deem certain contributions to be designated Roth contributions and require plans that utilize a deemed Roth catch-up provision to provide participants with the opportunity to make a new election that is different from the deemed election.&nbsp;
In a marked change from the proposed regulations, the final regulations permit optional aggregation for employers using a common paymaster, for some or all of the plan sponsor&rsquo;s controlled group members, and in the year of an asset purchase for purposes of determining a participant&rsquo;s FICA wages from the employer sponsoring the plan.&nbsp; The final regulations also provide for more flexibility with respect to corrections.&nbsp; While the proposed regulations implied that the same correction method must be used for all employees with Roth catch-up requirement errors, the final regulations clarify that this standard applies only to similarly situated participants, allowing more flexibility for corrections and permitting corrections to be tailored to, for example, the type of error or the type of participant.&nbsp; Responding to confusion regarding the phrase &ldquo;employer sponsoring the plan&rdquo; in the case of a multiemployer plan, the final regulations clarify that, in the context of the Roth catch-up requirement, the employer sponsoring the plan is the source of the participant&rsquo;s FICA wages and contributions to the multiemployer plan.&nbsp; The Roth catch-up requirement applies during 2026.&nbsp; Accordingly, implementation efforts intended to come into compliance with the requirement as of January 1, 2026 should continue.
The final regulations generally are applicable on and after January 1, 2027.&nbsp; During 2026, a reasonable, good faith interpretation standard applies which means, for practical purposes, that less than full compliance with the final regulations is permissible during 2026 if the requirement is implemented during 2026 based on a reasonable, good faith interpretation of the statutory Roth catch-up requirement.&nbsp; The applicability date of the final regulations may be later for plans maintained pursuant to one or more collectively bargained employees and for governmental plans as more fully described above.&nbsp; The relief goes further, and is more clearly stated, for multiemployer plans, which the final regulations state are deemed to satisfy the Roth catch-up statutory requirement until the first taxable year beginning after the date on which the last collective bargaining agreement related to the plan that is in effect on the date that is sixty days after publication of the final regulations in the Federal Register (by our count, November 15, 2025) terminates (without allowances for any extensions).
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<a href="#_ftnref1" id="_ftn1">[1]</a> The final regulations also provide that the deemed election must cease to apply within a reasonable period after the date an amended Form W-2 is filed or furnished to the participant indicating that the participant is not subject to the Roth catch-up requirement.&nbsp; This would only apply in the case that a participant who was not subject to the Roth catch-up requirement during a year is incorrectly initially determined to have been subject to the requirement in the next year only for it later to be determined that the initial determination was incorrect.
<a href="#_ftnref2" id="_ftn2">[2]</a> Multiemployer plans are provided with an extended period during which they are deemed to comply with the Roth catch-up requirement, even if they haven&rsquo;t taken any steps toward implementation of the provision.&nbsp; This extended period of deemed compliance is described in more detail below.

Required Roth Catch-Up Goes Live in 2026

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