“Catch Up” on Year-End Action Items for Retirement Plans

As the end of 2025 approaches, employers that sponsor retirement plans should “catch-up” on their operational and plan document compliance requirements. The SECURE 2.0 Act of 2022 (SECURE 2.0) introduced numerous mandatory and optional provisions for retirement plan sponsors to consider (many of which are already in effect). In addition, the Internal Revenue Service (IRS) recently published long anticipated final regulations related to two catch-up contribution provisions enacted under SECURE 2.0.  Although plan amendments are generally not required until December 31, 2026, plan sponsors must ensure operational compliance with SECURE 2.0’s catch-up provisions by January 1, 2026. This alert highlights certain aspects of the final regulations related to catch-up contributions and provides reminders related to upcoming plan amendment deadlines for catch-up contributions and certain other applicable laws.

Super Catch-Up Contributions

For taxable years beginning after December 31, 2024, eligible participants who attain age 60 to 63 during the taxable year may be permitted to contribute up to 150% of the standard catch-up contribution limit. For 2025, the standard catch-up contribution limit for individuals who are age 50 or older at the end of the calendar year is $7,500, meaning that the super catch-up contribution limit is $11,250. Plan sponsors are not required to permit super catch-up contributions. However, if permitted by the plan, the final regulations clarify that the plan document must be updated to specifically permit super catch-up contributions by December 31, 2026. Moreover, the final regulations confirm that permitting super catch-up contributions will not cause a plan to violate the “universal availability” requirement (i.e., all catch-up eligible participants must have the opportunity to contribute the same dollar amount as catch-up contributions). The universal availability requirement will be violated, however, unless all plans within a company’s controlled group similarly apply the super catch-up contribution provision. As such, if one plan in a company’s controlled group implements super catch-up contributions, then all plans within the same controlled group must permit such contributions.

Mandatory Roth Catch-Up Contributions

The final regulations confirm that employer-sponsored qualified retirement plans that permit catch-up contributions must operationally comply with the Roth catch-up requirement as of January 1, 2026. In general, the Roth catch-up requirement provides that catch-up eligible participants with FICA wages (i.e., Box 3 on Form W-2) exceeding $145,000 (adjusted annually for inflation) in the prior calendar year may only be permitted to make catch-up contributions as Roth contributions. More specifically, participants subject to the Roth catch-up requirement may, if set forth in the plan document, be deemed to have designated any catch-up contributions as Roth contributions, provided that such participant is afforded an effective opportunity to change or cease their catch-up contribution election prior to the deemed election applying.  Including deemed Roth catch-up elections in the plan terms is a prerequisite for using certain correction methods provided under the final regulations related to administrative errors associated with the Roth catch-up requirement. If a plan does not permit Roth contributions, these high-wage participants may not make catch-up contributions.

The final regulations clarify additional aspects of the Roth catch-up requirement. Specifically, with respect to the applicable wage threshold, a plan sponsor may (if set forth within the plan document) aggregate a participant’s FICA wages from multiple employers in the same controlled group or from a common paymaster. Additionally, participants without FICA wages in the prior calendar year (e.g., partners who only had self-employment income) are not subject to the Roth catch-up requirement. The final regulations also clarify that plan sponsors are not permitted to require that all catch-up contributions be designated Roth contributions.

Plan Amendment Deadline

In general, IRS Notice 2024-2 provided plan sponsors until December 31, 2026, to implement the required plan amendments provided under SECURE 2.0 (including its catch-up provisions), the SECURE Act of 2019 (SECURE), and the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). This amendment deadline relates to a number of key SECURE 2.0 provisions that are already in effect, including changes to certain required minimum distribution (RMD) requirements, automatic plan enrollment requirements, and long-term part-time employee participation requirements. Please keep in mind that terminating retirement plans must be amended to reflect all discretionary and required amendments, including changes under SECURE 2.0, SECURE, and CARES Act, by the plan termination date.

Next Steps for Plan Sponsors

Employers that sponsor qualified retirement plans should review current plan operations to ensure compliance with the final regulations associated with catch-up contribution provisions (and other aspects of SECURE 2.0, SECURE, and CARES Act) and consider whether any conforming amendments are necessary to comply with plan operations or changes in law.  Please contact any member of Honigman’s Employee Benefits and Executive Compensation Team to discuss any retirement plan amendments or other operational requirement questions you may have.