Seyfarth Synopsis: Earlier today, Treasury and the IRS issued highly-anticipated final regulations addressing several changes to the catch-up contribution provisions implemented by SECURE 2.0. Proposed regulations were issued earlier this year (see our Legal Update here), and administrative questions lingered following the issuance of the proposed regulations. The much-welcomed final regulations answer a number of open questions that we had been grappling with following the enactment of SECURE 2.0 and the issuance of the proposed regulations earlier this year. Below is a high-level overview of several pressing issues that have been addressed by the final regulations. We will be issuing a more comprehensive Legal Update on the final rules in the coming days.
1. Designated Roth Contributions Counted for Purposes of Roth Catch-up Requirement
Under the proposed regulations, designated Roth contributions made by a participant at any point within a calendar year must be counted towards satisfying the Roth catch-up requirement ("Roth Catch-Up Requirement"). This provision caused administrative concerns and several commenters asked that the final rules make this permissive so that plans had the choice as to whether to include Roth deferrals made by the participant at any point in the calendar year towards the Roth Catch-Up Requirement. The final regulations provide plan administrators that use the deemed Roth approach with some – but not universal – flexibility. The final regulations do not seem to go so far as making this optional approach available in all situations, which we will cover in the forthcoming Legal Update.
2. Determination of FICA Wages – Aggregation of Related Employers
Generally, an eligible participant must have FICA wages from the "employer sponsoring the plan" in excess of $145,000 as indexed (the "FICA Limit") for the preceding year in order to be subject to the Roth Catch-Up Requirement.
While the statutory language of SECURE 2.0 did not define "employer sponsoring the plan", the proposed regulations provide that when determining whether someone has wages in excess of the FICA Limit, the term "employer" refers only to the individual's common law employer who is participating under the plan. In other words, the proposed regulations suggested that you would not aggregate wages paid by all employers across the controlled group or affiliated service group of companies, even if there are multiple related employers participating under the plan.
The final regulations provide much-needed flexibility, allowing plans to aggregate wages from related employers when determining whether a participant has wages over the FICA Limit. The final regulations go so far as to provide that an employer may list the related employers being aggregated for this purpose in the plan document, allowing for additional flexibility with respect to how the FICA Limit is applied. The final regulations also allow for aggregation of wages where there is a common paymaster situation, which was not permitted under the proposed regulations.
3. Super Catch-Ups
Section 109 of SECURE 2.0 amended the IRC to increase the applicable catch-up dollar limit (i.e., generally $7,500 for most catch-up individuals) for eligible participants who will turn age 60, 61, 62 or 63 during the tax year ("Super Catch-Ups"). Please refer to our prior Legal Update for details on this provision. Following the issuance of the proposed regulations, it was unclear whether the adoption of this limit by one plan within a controlled group would require all other plans in the controlled group to do the same.
The final regulations clarify that if an employer plan provides for Super Catch-Ups, then any plan maintained by an employer within the same controlled group must also provide for Super Catch-Ups. This general rule is subject to a carve-out for employees who are collectively bargained. In other words, a plan does not violate the universal availability requirement if it permits Super Catch-Ups for non-collectively bargained employees, while collectively bargained employees are subject to the standard catch-up limit.
4. Applicability Date of Rules
Originally, the mandated Roth catch-up changes under SECURE 2.0 were to apply for tax years beginning after December 31, 2023. In Notice 2023-62, the IRS provided an administrative transition period, set to expire at the end of 2025. The regulations, however, are not effective until at least March 16, 2026, 6 months following publication in the Federal Register (scheduled for September 16). While the Roth Catch-Up Requirement is still required to be implemented as of January 1, 2026, prior to March 16, 2026 a reasonable, good faith interpretation standard applies with respect to the administration and operation of the final regulations.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
