Catch-up contributions
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Just Catching Up? For SECURE 2.0’s Catch-Up Contributions, Age Is More Than Just a Number

Nearly all employers offer eligible participants the opportunity to make additional catch-up contributions to their retirement plans. However, beginning in 2025, the SECURE 2.0 Act makes so-called “super-catch-up contributions” available to certain employees. Adding this new feature will require employers and their service providers to develop new processes to monitor various ages and limits and to audit that information to ensure it is properly applied.

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SECURE 2.0 Technical Corrections Are on the Way, Eventually

In an open letter to Secretary of the Treasury Janet Yellen and IRS Commissioner Daniel Werfel, congressional leaders identified several technical errors in the SECURE 2.0 Act that they intend to correct. Although the letter indicates that Congress intends to correct these technical errors and ambiguities in the legislation, it does not address the timetable for doing so.

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Just Catching Up? Oops! Congress Clarifies Catch-Up Contributions Are Here to Stay

Section 603 of the SECURE 2.0 Act requires catch-up contributions made by certain high-wage earners to be made on a Roth basis beginning in 2024. But it also contains one of the most talked about technical errors in the legislation, one that resulted in Congress eliminating all catch-up contributions—for everyone. Not surprisingly, that isn’t quite what Congress had in mind.

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Just Catching Up? Payroll Challenges Plague Roth Catch-Up Contribution Implementation

The SECURE 2.0 Act requires participants who earned more than $145,000 in FICA wages in the prior year from their current employer to make all catch-up contributions on a Roth basis beginning in 2024. For many employers, the primary concern is how to integrate the new rule with how payroll deductions for catch-up contributions are processed and then transmitted to plan recordkeepers.

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Just Catching Up? Wages, by Any Other Name, Not So Sweet for Employers Under SECURE 2.0

Retirement plans often apply (and in some cases are required to use) multiple definitions of wages or compensation for various plan purposes. Given this complexity, failures to follow a plan’s definition of compensation are one of the most common issues experienced by retirement plan sponsors. Unfortunately, as drafted, the SECURE 2.0 Act only adds to that complexity.

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Just Catching Up? All for One, or None for All, Catch-Up Contributions Under SECURE 2.0

Beginning after December 31, 2023, the SECURE 2.0 Act indicates that any plan that permits catch-up contributions must require certain employees to make their catch-up contributions on a Roth basis. Employers have expressed significant concerns regarding their ability to implement the necessary system changes—specifically to payroll and recordkeeping systems—by year-end.

In response, employers have begun to explore alternatives that might simplify implementation (or avoid the need to do it altogether). This has produced several questions about what employers can and cannot do.

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Just Catching Up? SECURE 2.0 Roth Catch-Up Contribution Requirement Leaves More Questions than Answers

Beginning after December 31, 2023, the SECURE 2.0 Act indicates that any plan that permits catch-up contributions must require certain employees—i.e., those whose wages from their employer exceed $145,000 in the prior calendar year—to make their catch-up contributions on a Roth basis. This change raises a host of questions about how the rule is intended to apply in practice and even more concerns about the operational obstacles employers will face in attempting to implement the change by year-end.

In this series of articles, we will explore the implications of SECURE 2.0’s changes to catch-up contributions and how employers should respond.

Read first article here.




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IRS Announces 2022 Retirement Plan Limits

The Internal Revenue Service (IRS) recently announced the cost-of-living adjustments to the applicable dollar limits for retirement plans for 2022. Most of the dollar limits currently in effect for 2021 will increase, with only the catch-up contribution limit remaining the same for 2022.

View the adjustments here.




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