On Friday, January 10, 2025, the Department of the Treasury and the IRS (collectively, the IRS) released proposed regulations addressing three provisions of SECURE 2.0 that impact catch-up contributions to certain types of employment-based retirement plans:

• Section 603, which provides that 401(k), 403(b), and governmental 457(b) plan participants with FICA wages over $145,000 (adjusted for inflation) in the prior year can make age-based catch-up contributions only on a Roth basis and not on a pre-tax basis. This is referred to in this summary as the “Roth catch-up mandate.”

• Section 109, which allows for additional catch-up contributions to 401(k), 403(b), governmental 457(b), SARSEP, SIMPLE IRA, and SIMPLE 401(k) plans for employees age 60, 61, 62, or 63. This is referred to in this summary as the “super catch-up.”

• Section 117, which increases the contribution limits for SIMPLE IRA and SIMPLE 401(k) plans sponsored by an employer with 25 or fewer employees to 110% of the limits that would otherwise apply with respect to such plans for 2024 (adjusted).

Comments on the proposed regulations are due 60 days after publication in the Federal Register. A hearing has been scheduled for April 7, 2025.

Key Takeaways

• No further extension of the mandate’s applicability date. The proposed regulations do not provide an extension of the Roth catch-up mandate, which was extended from 2024 to 2026 by Notice 2023-62. The regulations themselves generally are proposed to apply to contributions in taxable years that begin more than six months after final regulations are published (with a later date for collectively bargained plans). Thus, it appears that unless the final regulations are issued very quickly, or unless the IRS provides another extension, the Roth catch-up mandate will apply in 2026, but the interpretations in the regulation would not. It is expected, however, that in the interim the IRS would honor actions based on a reasonable interpretation of the proposed rules.

• Mandate based only on FICA wages. The proposed regulations generally follow the interpretation in Notice 2023-62 that the wage threshold for the Roth catch-up mandate is based on FICA—specifically, Social Security—wages and that employees (such as certain state and local government employees) whose compensation is not considered Social-Security wages will not be subject to the mandate.

• No aggregation of multiple employers. The proposed regulations would confirm that a plan does not need to aggregate FICA wages from multiple common law employers that paid wages to the same employee in a year.  This is true even if the two employers are related and otherwise would need to be aggregated for nondiscrimination testing purposes.

• New methods of correcting errors in applying the mandate. The proposed regulations include two new methods to correct errors in administering the Roth catch-up mandate, that is, when a plan allows a participant who is subject to the Roth catch-up mandate to contribute to the plan on a pre-tax basis rather than Roth.  The employer may correct by recharacterizing the contribution as a Roth contribution and reporting it on the employee’s W-2, but the recharacterization cannot be done after the Form W-2 is sent.  Alternatively, the employer may correct via an in-plan Roth conversion, which is reported on a Form 1099-R.

• Okay not to offer Roth contributions at all. The proposed regulations would allow an employer to avoid the Roth catch-up mandate by not offering Roth contributions at all. Surprisingly, in this case, the plan could still allow pre-tax catch-up contributions for those employees under the higher earner salary threshold who are not subject to the Roth catch-up mandate.

• Deemed Roth catch-up elections permitted / required. As anticipated, the proposed regulations would allow a plan to include a “deemed” Roth election under which an employee who has elected to make catch-up contributions would be deemed to elect to do so as Roth if the Roth catch-up mandate applies. This deemed election approach would generally be a requirement in order to take advantage of the special correction methods described above.

• Super catch-up contribution limits are NOT mandatory. The proposed regulations confirm that a plan that allows age-based catch-up contributions for employees age-50 and older is  not required to offer super age-based catch-up contributions for employees age 60-63.

For additional information, please contact Irica Solomon, Head of Government Affairs or Erica McFarquhar, Deputy General Counsel.